Portfolio Management and Investment Decision

DECLARATION

I here by declare that the project entitled

“PORTFOLIO MANAGEMENT AND INVESTMENT DECISION”

Submitted for partial fulfillment for the award of

Degree of

MASTER OF BUSSINESS ADMINISTRATION is entirely original and

Has not

Been

Submitted earlier by any one for any Degree or Diploma.

DATE:
PLACE:

Objectives and methodology

Aim of the study:

The study focuses its attention on the functioning of stock markets and

Construction of the equity portfolio

Objectives: ➢ To study the investment decision process.

➢ To analysis the risk return characteristics of sample scripts.

➢ Ascertain portfolio weights.

➢ To construct an effective portfolio which offers the maximum return for minimum risk

Methodology

➢ Visiting Kotak securities at Banjara hills, Secunderabad and collecting information

➢ Discussions were conducted with the personnel of Kotak securities

Sources of information

The study uses extensively both primary and secondary data

Primary data:

Information was collected through this source comprises of discussions with the personnel of Fortis securities

Secondary data:

The secondary data includes information obtained from various sources that includes newspaper articles, business magazines and web

Limitations

1. The project work is mainly based on the above mentioned sources of information

2. The study was made in purview of the guidelines of SEBI, NATIONAL STOCK EXCHANGE OF INDIA and KOTAK SECURITIES as applicable to that period only.

INTRODUCTION

INTRODUCTION , IMPORTANCE & NEED OF STUDY

Portfolio management or investment helps investors in effective and efficient management of their investment to achieve this goal
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The rapid growth of capital markets in India has opened up new investment avenues for investors.

The stock markets have become attractive investment options for the common man.

But the need is to be able to effectively and efficiently manage investments in order to keep maximum returns with minimum risk.

Hence this study on PORTFOLIO MANAGEMENT & INVESTMENT DECISION” to examine the role process and merits of effective investment management and decision.

PORTFOLIO MANAGEMENT

PORTFOLIO:

A portfolio is a collection of securities since it is really desirable to invest the entire funds of an individual or an institution or a single security, it is essential that every security be viewed in a portfolio context. Thus it seems logical that the expected return of the portfolio. Portfolio analysis considers the determine of future risk and return in holding various blends of individual securities

Portfolio expected return is a weighted average of the expected return of the individual securities but portfolio variance, in short contrast, can be something reduced portfolio risk is because risk depends greatly on the co-variance among returns of individual securities. Portfolios, which are combination of securities, may or may not take on the aggregate characteristics of their individual parts.

Since portfolios expected return is a weighted average of the expected return of its securities, the contribution of each security the portfolio’s expected returns depends on its expected returns and its proportionate share of the initial portfolio’s market value. It follows that an investor who simply wants the greatest possible expected return should hold one security; the one which is considered to have a greatest expected return. Very few investors do this, and very few investment advisors would counsel such and extreme policy instead, investors should diversify, meaning that their portfolio should include more than one security.

OBJECTIVES OF PORTFOLIOMANAGEMENT:

The main objective of investment portfolio management is to maximize the returns from the investment and to minimize the risk involved in investment. Moreover, risk in price or inflation erodes the value of money and hence investment must provide a protection against inflation.

Secondary objectives:

The following are the other ancillary objectives:

• Regular return. • Stable income. • Appreciation of capital. • More liquidity. • Safety of investment. • Tax benefits.

Portfolio management services helps investors to make a wise choice between alternative investments with pit any post trading hassle’s this service renders optimum returns to the investors by proper selection of continuous change of one plan to another plane with in the same scheme, any portfolio management must specify the objectives like maximum return’s, and risk capital appreciation, safety etc in their offer.

Return From the angle of securities can be fixed income securities such as:

(a) Debentures –partly convertibles and non-convertibles debentures debt with tradable Warrants.
(b) Preference shares
(c) Government securities and bonds
(d) Other debt instruments

(2) Variable income securities (a) Equity shares (b) Money market securities like treasury bills commercial papers etc.

Portfolio managers has to decide up on the mix of securities on the basis of contract with the client and objectives of portfolio

NEED FOR PORTFOLIO MANAGEMENT:

Portfolio management is a process encompassing many activities of investment in assets and securities. It is a dynamic and flexible concept and involves regular and systematic analysis, judgment and action. The objective of this service is to help the unknown and investors with the expertise of professionals in investment portfolio management. It involves construction of a portfolio based upon the investor’s objectives, constraints, preferences for risk and returns and tax liability. The portfolio is reviewed and adjusted from time to time in tune with the market conditions. The evaluation of portfolio is to be done in terms of targets set for risk and returns. The changes in the portfolio are to be effected to meet the changing condition.

Portfolio construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. Portfolio theory concerns itself with the principles governing such allocation. The modern view of investment is oriented more go towards the assembly of proper combination of individual securities to form investment portfolio.

A combination of securities held together will give a beneficial result if they grouped in a manner to secure higher returns after taking into consideration the risk elements.

The modern theory is the view that by diversification risk can be reduced. Diversification can be made by the investor either by having a large number of shares of companies in different regions, in different industries or those producing different types of product lines. Modern theory believes in the perspective of combination of securities under constraints of risk and returns

PORTFOLIO MANAGEMENT PROCESS:

Investment management is a complex activity which may be broken down into the following steps:

1) Specification of investment objectives and constraints:

The typical objectives sought by investors are current income, capital appreciation, and safety of principle. The relative importance of these objectives should be specified further the constraints arising from liquidity, time horizon, tax and special circumstances must be identified.

2) choice of the asset mix :

The most important decision in portfolio management is the asset mix decision very broadly; this is concerned with the proportions of ‘stocks’ (equity shares and units/shares of equity-oriented mutual funds) and ‘bonds’ in the portfolio.

The appropriate ‘stock-bond’ mix depends mainly on the risk tolerance and investment horizon of the investor.

ELEMENTS OF PORTFOLIO MANAGEMENT:

Portfolio management is on-going process involving the following basic tasks:

▪ Identification of the investor’s objectives, constraints and preferences. ▪ Strategies are to be developed and implemented in tune with investment policy formulated. ▪ Review and monitoring of the performance of the portfolio. ▪ Finally the evaluation of the portfolio
Risk:
Risk is uncertainty of the income /capital appreciation or loss or both. All investments are risky. The higher the risk taken, the higher is the return. But proper management of risk involves the right choice of investments whose risks are compensating. The total risks of two companies may be different and even lower than the risk of a group of two companies if their companies are offset by each other.

The two major types of risks are:

❖ Systematic or market related risk.

❖ Unsystematic or company related risks.

Systematic risks affected from the entire market are (the problems, raw material availability, tax policy or government policy, inflation risk, interest risk and financial risk). It is managed by the use of Beta of different company shares.

The unsystematic risks are mismanagement, increasing inventory, wrong financial policy, defective marketing etc. this is diversifiable or avoidable because it is possible to eliminate or diversify away this component of risk to a considerable extent by investing in a large portfolio of securities. The unsystematic risk stems from inefficiency magnitude of those factors different form one company to another.

RETURNS ON PORTFOLIO:

Each security in a portfolio contributes return in the proportion of its investments in security. Thus the portfolio expected return is the weighted average of the expected return, from each of the securities, with weights representing the proportions share of the security in the total investment. Why does an investor have so many securities in his portfolio? If the security ABC gives the maximum return why not he invests in that security all his funds and thus maximize return? The answer to this questions lie in the investor’s perception of risk attached to investments, his objectives of income, safety, appreciation, liquidity and hedge against loss of value of money etc. this pattern of investment in different asset categories, types of investment, etc., would all be described under the caption of diversification, which aims at the reduction or even elimination of non-systematic risks and achieve the specific objectives of investors

RISK ON PORTFOLIO :

The expected returns from individual securities carry some degree of risk. Risk on the portfolio is different from the risk on individual securities. The risk is reflected in the variability of the returns from zero to infinity. Risk of the individual assets or a portfolio is measured by the variance of its return. The expected return depends on the probability of the returns and their weighted contribution to the risk of the portfolio. These are two measures of risk in this context one is the absolute deviation and other standard deviation.

Most investors invest in a portfolio of assets, because as to spread risk by not putting all eggs in one basket. Hence, what really matters to them is not the risk and return of stocks in isolation, but the risk and return of the portfolio as a whole. Risk is mainly reduced by Diversification.

RISK RETURN ANALYSIS:

All investment has some risk. Investment in shares of companies has its own risk or uncertainty; these risks arise out of variability of yields and uncertainty of appreciation or depreciation of share prices, losses of liquidity etc

The risk over time can be represented by the variance of the returns. While the return over time is capital appreciation plus payout, divided by the purchase price of the share.

[pic]

Normally, the higher the risk that the investor takes, the higher is the return. There is, how ever, a risk less return on capital of about 12% which is the bank, rate charged by the R.B.I or long term, yielded on government securities at around 13% to 14%. This risk less return refers to lack of variability of return and no uncertainty in the repayment or capital. But other risks such as loss of liquidity due to parting with money etc., may however remain, but are rewarded by the total return on the capital. Risk-return is subject to variation and the objectives of the portfolio manager are to reduce that variability and thus reduce the risky by choosing an appropriate portfolio.

Traditional approach advocates that one security holds the better, it is according to the modern approach diversification should not be quantity that should be related to the quality of scripts which leads to quality of portfolio.

Experience has shown that beyond the certain securities by adding more securities expensive.

Simple diversification reduces:

An asset’s total risk can be divided into systematic plus unsystematic risk, as shown below:

Systematic risk (undiversifiable risk) + unsystematic risk (diversified risk) =Total risk =Var (r).

Unsystematic risk is that portion of the risk that is unique to the firm (for example, risk due to strikes and management errors.) Unsystematic risk can be reduced to zero by simple diversification.

Simple diversification is the random selection of securities that are to be added to a portfolio. As the number of randomly selected securities added to a portfolio is increased, the level of unsystematic risk approaches zero. However market related systematic risk cannot be reduced by simple diversification. This risk is common to all securities.

Persons involved in portfolio management:

Investor: Are the people who are interested in investing their funds

Portfolio managers:

Is a person who is in the wake of a contract agreement with a client, advices or directs or undertakes on behalf of the clients, the management or distribution or management of the funds of the client as the case may be.

Discretionary portfolio manager:

Means a manager who exercise under a contract relating to a portfolio management exercise any degree of discretion as to the investment or management of portfolio or securities or funds of clients as the case may be
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The relation ship between an investor and portfolio manager is of a highly interactive nature

The portfolio manager carries out all the transactions pertaining to the investor under the power of attorney during the last two decades, and increasing complexity was witnessed in the capital market and its trading procedures in this context a key (uninformed) investor formed ) investor found him self in a tricky situation , to keep track of market movement ,update his knowledge, yet stay in the capital market and make money , there fore in looked forward to resuming help from portfolio manager to do the job for him .

The portfolio management seeks to strike a balance between risk’s and return.

The generally rule in that greater risk more of the profits but S.E.B.I. in its guidelines prohibits portfolio managers to promise any return to investor.
Portfolio management is not a substitute to the inherent risk’s associated with equity investment

Who can be a portfolio manager?

Only those who are registered and pay the required license fee are eligible to operate as portfolio managers. An applicant for this purpose should have necessary infrastructure with professionally qualified persons and with a minimum of two persons with experience in this business and a minimum net worth of Rs. 50lakh’s. The certificate once granted is valid for three years. Fees payable for registration are Rs 2.5lakh’s every for two years and Rs.1lakh’s for the third year. From the fourth year onwards, renewal fees per annum are Rs 75000. These are subjected to change by the S.E.B.I.

The S.E.B.I. has imposed a number of obligations and a code of conduct on them. The portfolio manager should have a high standard of integrity, honesty and should not have been convicted of any economic offence or moral turpitude. He should not resort to rigging up of prices, insider trading or creating false markets, etc. their books of accounts are subject to inspection to inspection and audit by S.E.B.I... The observance of the code of conduct and guidelines given by the S.E.B.I. are subject to inspection and penalties for violation are imposed. The manager has to submit periodical returns and documents as may be required by the SEBI from time-to- time.

.Functions of portfolio managers:

the main function of portfolio managers are :

• Advisory role: advice new investments, review the existing ones, identification of objectives, recommending high yield securities etc.

• Conducting market and economic service: this is essential for recommending good yielding securities they have to study the current fiscal policy, budget proposal; individual policies etc further portfolio manager should take in to account the credit policy, industrial growth, foreign exchange possible change in corporate law’s etc.

• Financial analysis: he should evaluate the financial statement of company in order to understand, their net worth future earnings, prospectus and strength.

• Study of stock market : he should observe the trends at various stock exchange and analysis scripts so that he is able to identify the right securities for investment

• Study of industry: he should study the industry to know its future prospects, technical changes etc, required for investment proposal he should also see the problem’s of the industry.

• Decide the type of port folio: keeping in mind the objectives of portfolio a portfolio manager has to decide weather the portfolio should comprise equity preference shares, debentures, convertibles, non-convertibles or partly convertibles, money market, securities etc or a mix of more than one type of proper mix ensures higher safety, yield and liquidity coupled with balanced risk techniques of portfolio management.

A portfolio manager in the Indian context has been Brokers (Big brokers) who on the basis of their experience, market trends, Insider trader, helps the limited knowledge persons.

The one’s who use to manage the funds of portfolio, now being managed by the portfolio of Merchant Bank’s, professional’s like MBA’s CA’s And many financial institution’s have entered the market in a big way to manage portfolio for their clients.

According to S.E.B.I. rules it is mandatory for portfolio managers to get them self’s registered.

Registered merchant bankers can act’s as portfolio manager’s
Investor’s must look forward, for qualification and performance and ability and research base of the portfolio manager’s.

Technique’s of portfolio management:

As of now the under noted technique of portfolio management: are in vogue in our country 1. equity portfolio: is influenced by internal and external factors the internal factors effect the inner working of the company’s growth plan’s are analyzed with referenced to Balance sheet, profit & loss a/c (account) of the company. Among the external factor are changes in the government policies, Trade cycle’s, Political stability etc. 2. equity stock analysis: under this method the probable future value of a share of a company is determined it can be done by ratio’s of earning per share of the company and price earning ratio

EPS == PROFIT AFTER TAX NO: OF EQUITY SHARES

PRICE EARNING RATIO= MARKET PRICE E.P.S (earning’s per share)

One can estimate trend of earning by EPS, which reflects trends of earning quality of company, dividend policy, and quality of management.
Price earning ratio indicate a confidence of market about the company future, a high rating is preferable.
.
The following points must be considered by portfolio managers while analyzing the securities.

1. Nature of the industry and its product: long term trends of industries, competition with in, and out side the industry, Technical changes, labour relations, sensitivity, to Trade cycle. 2. Industrial analysis of prospective earnings, cash flows, working capital, dividends, etc.

3. Ratio analysis: Ratio such as debt equity ratio’s current ratio’s net worth, profit earning ratio, return on investment, are worked out to decide the portfolio.

The wise principle of portfolio management suggests that “Buy when the market is low or BEARISH, and sell when the market is rising or BULLISH”.

Stock market operation can be analyzed by: a) Fundamental approach :- based on intrinsic value of share’s b) Technical approach:-based on Dowjone’s theory, Random walk theory, etc.

Prices are based upon demand and supply of the market.

i. Traditional approach assumes that ii. Objectives are maximization of wealth and minimization of risk. iii. Diversification reduces risk and volatility. iv. Variable returns, high illiquidity; etc.

Capital Assets pricing approach (CAPM) it pay’s more weight age, to risk or portfolio diversification of portfolio.

Diversification of portfolio reduces risk but it should be based on certain assessment such as:

Trend analysis of past share prices.

Valuation of intrinsic value of company (trend-marker moves are known for their

Uncertainties they are compared to be high, and low prompts of wave market trends are constituted by these waves it is a pattern of movement based on past).

The following rules must be studied while cautious portfolio manager before decide to invest their funds in portfolio’s.

1. Compile the financials of the companies in the immediate past 3 years such as turn over, gross profit, net profit before tax, compare the profit earning of company with that of the industry average nature of product manufacture service render and it future demand ,know about the promoters and their back ground, dividend track record, bonus shares in the past 3 to 5 years ,reflects company’s commitment to share holders the relevant information can be accessed from the RDC(registrant of companies)published financial results financed quarters, journals and ledgers.

2. Watch out the high’s and lows of the scripts for the past 2 to 3 years and their timing cyclical scripts have a tendency to repeat their performance ,this hypothesis can be true of all other financial ,

3. The higher the trading volume higher is liquidity and still higher the chance of speculation, it is futile to invest in such shares who’s daily movements cannot be kept track, if you want to reap rich returns keep investment over along horizon and it will offset the wild intra day trading fluctuation’s, the minor movement of scripts may be ignored, we must remember that share market moves in phases and the span of each phase is 6 months to 5 years.

a. Long term of the market should be the guiding factor to enable you to invest and quit. The market is now bullish and the trend is likely to continue for some more time.

b. UN tradable shares must find a last place in portfolio apart from return; even capital invested is eroded with no way of exit with no way of exit with inside.

How at all one should avoid such scripts in future?

(1) Never invest on the basis of an insider trader tip in a company which is not sound (insider trader is person who gives tip for trading in securities based on prices sensitive up price sensitive un published information relating to such security).

(2) Never invest in the so called promoter quota of lesser known company

(3) Never invest in a company about which you do not have appropriate knowledge.

(4) Never at all invest in a company which doesn’t have a stringent financial record your portfolio should not a stagnate

(4) Shuffle the portfolio and replace the slow moving sector with active ones , investors were shatter when the technology , media, software , stops have taken a down slight.

(5) Never fall to the magic of the scripts don’t confine to the blue chip company‘s, look out for other portfolio that ensure regular dividends.

(6) In the same way never react to sudden raise or fall in stock market index such fluctuation is movementary minor correction’s in stock market held in consolidation of market their by reading out a weak player often taste on wait for the dust and dim to settle to make your move” .

PORT FOLIO MANAGEMENT AND DIVERSIFICATOIN:

Combinations of securities that have high risk and return features make up a portfolio.

Portfolio’s may or may not take on the aggregate characteristics of individual part, portfolio analysis takes various components of risk and return for each industry and consider the effort of combined security.

Portfolio selection involves choosing the best portfolio to suit the risk return preferences of portfolio investor management of portfolio is a dynamic activity of evaluating and revising the portfolio in terms of portfolios objectives

It is widely accepted that returns from individual scripts carry certain rate of risk .portfolio held in spreading the risk in many security then the risk is reduced. The basic principle is that of a port folio holds several assets or securities
It may include in cash also, even if one goes bad the other will provide protection from the loss even cash is subject to inflation the diversification can be either vertical or horizontal the vertical diversification portfolio can have script of different company’s with in the same industry.

In horizontal diversification one can have different scripts chosen from different industries.

|CEMENT INDUSTRY |.TEXTILE INDUSTRY |
| | |
|ACC CEMENT |RELILANCE INDUSTRIES |
|JK CEMENT |GARDEN SILK MILLS |
|ULTRA TECH |NECP TEXTILE |
|BIRLA CEM |BOMBAY DEYING |
|VISHNU CEM |GRASIM INDUSTRIES |
|PRIYA CEM |BORODA RAYON |
|RAM CO CEM |CHESLIND TEXTILE |

| Horizontal Diversification |
| |
|TISCO MANUFACTURING |
|ACC |
|GARDEN TEXTILE |
|INFOSYS (SOFTWARE) |
|BSES LTD (POWER) |
|ULTRA TECH (CONSTRUCTION) |

Diversification should be either be too much nor too less

It should be an adequate diversification looking in to the size of portfolio.
Traditional approach advocates the more security one holds in a portfolio , the better it is according to modern approach diversification should not be quantified but should be related to the quality of scripts which leads to the quality and portfolio subsequently experience can show that beyond a certain number of securities adding more securities become expensive.

Investment in a fixed return securities in the current market scenario which is passing through a an uncertain phase investors are facing the problem of lack of liquidity combined with minimum returns the important point to both is that the equity market and debt market moves in opposite direction .where the stock market is booming, equities perform better where as in depressed market the assured returns related securities market out perform equities.

It is cyclic and is evident in more global market keeping this in mind an investor can shift from fixed income securities to equities and vise versa along with the changing market scenario , if the investment are wisely planned they , fetch good returns even when the market is depressed most , important the investor must adopt the time bound strategy in differing state of market to achieve the optimum result when the aim is short term returns it would be wise for the investor to invest in equities when the market is in boom & it could be reviewed if the same is done.

Maximum of returns can be achieved by following a composite pattern of investment by having, suitable investment allocation strategy among the available resources.

❖ Never invest in a single securities your investment can be allocated in the following areas:

1. Equities:-primary and secondary market. 2. Mutual Funds 3. Bank deposits 4. Fixed deposits & bonds and the tax saving schemes

❖ The different areas of fixed income are as:-

Fixed deposits in company Bonds Mutual funds schemes

with an investment strategy to invest in debt investment in fixed deposit can be made for the simple reason that assured fixed income of a high of 14-17% per annum can be expected which is much safer then investing a highly volatile stock market, even in comparison to banks deposit which gives a maximum return of 12% per annum, fixed deposit s in high profile esteemed will performing companies definitely gives a higher returns.

Additional facilities offered by most of the schemes

Instant loan facility
Advances payment of interest in the form of postdated warrants
Premature with drawl facility
Pre personal accident insurance

Fixed deposit does provide a Varity of schemes to suit the financial links of investor a few of the schemes are:

❖ Monthly income deposits where the interest is paid every month. ❖ Quarterly income deposit where the interest is paid once in a quarter ❖ Cumulative deposit where interest is accumulated and paid at the time of maturity. ❖ Recurring deposit similar to recurring deposit of banks ❖ Cash certificates schemes

An investor can look for the CRISIL, CARE, ICRA, ratings for fixed deposits.

BETA:

The concept of Beta as a measure of systematic risk is useful in portfolio management. The beta measures the movement of one script in relation to the market trend*. Thus BETA can be positive or negative depending on whether the individual scrip moves in the same direction as the market or in the opposite direction and the extent of variance of one scrip vis-à-vis the market is being measured by BETA. The BETA is negative if the share price moves contrary to the general trend and positive if it moves in the same direction. The scrip’s with higher BETA of more than one are called aggressive, and those with a low BETA of less than one are called defensive.

It is therefore it is necessary, to calculate Betas for all scrip’s and choose those with high Beta for a portfolio of high returns.

EFFICIENT FRONTIER

To construct an efficient portfolio, we have to conceptualize. Various combinations of investments in a basket and designate them as portfolio 1 and n. the expected returns from these portfolios are be worked out. The risk on these portfolios is to be estimated by measuring the standard deviation of different portfolio returns. In order to understand more easily we will see in Morkowitz graphical selection of portfolio:

If there are “n” assets available in the capital market, we can constitute two assets portfolio, three asset portfolio, four asset portfolio, and ….”n” asset portfolio. For each portfolio there are “n” possible proportions of investments. Together they result in an almost infinite number of portfolios. The risk and return and be seen in graph below:

[pic] Findings : The markowirtz graphic selection of portfolio is set to be not an efficient one because if an investor is ready to take risk at std deviation X. he can vote the last portfolio Y .from the risk std deviation Z and Rx point of view it is not an efficient portfolio.

“X is a denominated portfolio. “Y” and “Z” is a dominant portfolio.

When the outer points of an efficient portfolio are jointed a shell is formed or a broken egg is formed. the shape depends upon degree of correlation among securities, therefore the shell is called attainable set, feasible set, it is so called because all the available investment opportunities in the market like either on the border or with in the border.

CONCEPT OF EFFICIENT PORTFOLIO:

Assume that X is selected it is in –efficient portfolio because 1. If he is prepare to take a risk of STD deviation for the same risk “Y”. gives in the higher rate of Ry . Therefore “Y” is a dominant portfolio and “X” is a dominated portfolio.

2.if a investor is satisfied with the return of Rx , the same return can be earn by choosing portfolio “Z” which has a similar risk of std deviation x (As against larger risk std deviation x)

The dominants principle states that among all the investment opportunities available with a given return, the investment with the least risk is the most desirable one or among the investment in a given risk class, the one with the highest return with the most desirable one. Risk principle is also called Efficient set theorem. In the light of this segment A, B is the relevant portion of the feasible set it is called the Markowitz efficient frontier. It is so called because all efficient portfolios lie on this frontier.

An efficient portfolio is one, that gives the highest return for given return or a minimum risk for a given return, these efficient portfolios are also refer as means variance efficient portfolios. The shape of the efficient frontier is given by Delta RP /Delta STD deviation p.

MODIFICATION TO THE EFFICIENT FRONTIER:

Two modifications to the efficient frontier must be discussed: what happens when short selling is added, and what happens when leveraged portfolios are added?

A. Short selling: the ability to short sell has two effects on the efficient frontier. The frontier probably shifts up and to the left and it continuous to the right. The ability to short sell securities created a new set of possible investments. A security sold short produces a positive return when a security has a large decrease in price and a negative return when its price increases. Its potential improves the efficient frontier.

Because the ability to short sell doubles the number of possible investments. Since investors are free not short sell, the introduction of the ability to short sell cannot make investors worse off. If it never pays to short sell, the worst that can happen is that the efficient frontier is unchanged. With out short sales, all investors can do is not to hold securities that they believe do poorly.

With short sales, an opportunity is created that is expected to have almost the opposite characteristics of the investment when purchased. With short sales it is possible, in a sense to disinvest in poor investments and hence gain poorly. If it ever pays to short sell any security, the efficient frontier is shifted up and to the left. This is an example of the old economic adage that a decision maker can not be worse o by being given additional choices and the decision maker may well be better off. In addition short sales allow the investor to decrease or eliminate market risk in a large well diversified portfolio, unique risk is eliminated and only market risk remains. Short sales allow the reduction of market risk to very low levels. Thus the additional of short positions operates as a hedging mechanism, reducing the market exposure of a portfolio.

The extension of the efficient frontier to the right arises from the tendency of a very large amount of short selling to increase the risk and return on the portfolio. This increase in risk is easy to understand. Short sales can involve unlimited loss. The lesson to be learned from this is that short sales can increase the possible level of return for any level of risk. Short sales can be abused and positions taken that are too extreme. However short selling per sec is not bad. Like any other investment strategy, it can be used prudently or imprudently.

B.LEVERAGED PORTFOLIO:

Markowitz model, which recognized the existence of both systematic and unsystematic risk, did not allow for borrowing and lending opportunities. The investor is assumed to have a certain amount of initial wealth to invest for a given holding period. Off all the periods that are available, the optimal one is shown to correspond to the point where one of the investor’s indifference curves in tangent to the efficient set.

At the end of the holding period, the investor’s initial wealth will have either increased or decreased, depending on the portfolio’s rate of return. Again in the markowitz ‘s approach , it is assumed that the assets being considered for investment are individually risky, that is each one of the N risky assets has an uncertain return over the investor’s holding period. Since none of the asset has a perfectly negitive correlation with any other asset, all the portfolios also have uncertain returns over the investor is not allowed to use borrowed money. A long with his or her initial wealth, to purchase a portfolio of assets. This means that the investor is not allowed to use financial leverage.

To expand the Markowitz approach investor can consider risk free assets and financial leverage by first investing in not only risky assets but also in risk free assets, and second by borrowing money at a given rate of interest.

1. RISK FREE ASSET:

Investment in risk free asset is often referred to as risk free lending. Since this approach involves investing for a single holding period, it means that the return of the risk free asset is certain. That is, if the investor purchases this asset at the beginning of the holding period, then the investor knows exactly what the value of the asset will be at the end of the holding project. Since there is no uncertainty about the terminal value of the risk free asset, the standard deviation of the risk free assets, by definition, zero. In turn, this means that the covariance between the rate of return on the risk free asset and the rate of return on any risky asset is zero.

2. INVESTMENT IN BOTH THE RISK FREE ASSETS AND A RISKY ASSTS:

The efficient frontier would be altered substantially if a risk frees securities is included among available investment opportunities. While a risk free security does not exist in the strict sense of the word, there are securities, which promise return with relative certainty. They are characterized by an absence of default risk and return rate; full payment of principle is assured with out serious prospect of capital loss arising from changes in the level of interest rates. A risk free security of this type includes cash, short-term treasury bills, and time deposits in banks or savings and loan association; cash would be dominated by the other positive return investments.

Given the opportunity to either borrow or lend at the risk free rate, an investor proceed to identify the optimal portfolio by plotting his or her indifference curves on graph and nothing where once of them is tangent to the indifference efficient set.

For example portfolio, has an expected return of 11% and a standard deviation of 12.5%. However, portfolio is not efficient, since portfolio B has the same expected return but a standard deviation of only 8%. Portfolio but not efficient, l since portfolio f has a still higher return with the same degree of risk as e and h. Portfolio A is a single equity portfolio that has the highest return and risk; in no way can investor improve on its return-to-risk ratio. If investor moves to the right on the curve, return decreases and risk decreased. Hence investor moves to the left and down. The only way the investor can obtain a higher return on the efficient frontier is to accept a higher return on the efficient frontier is to accept a higher amount of risk.

Where investors operate on the capital market line depends on their attitudes towards risk and return. Investors must determine their own preference for risk and return by way of a difference cure. In theory, the investor will invest the combination of securities found at the point where the highest indifference curve just touches the capital market line. Investors might have higher return and lower risk goals, but they can obtain those combinations only on the capital market line, and will invest at some point that gives the combination of returns and risk that allows them to maximize net worth and make a satisfactory investment

. To be realistic, assume that the investor’s borrowing rate is above the lending rate. Combination of lending or borrowing with a portfolio of risky assets lies along a straight lines, with lending and borrowing the efficient frontier. Noticed that for all investors, expect for those whose risk-return trade-offs causes they to hold portfolios, the ability to lend and borrow improve their opportunities. The ability to lend is hardly controversial. The borrowing part may be more controversial. Borrowing and buying a less risky portfolio can give higher returns and less risk and buying a more risky portfolio.

Higher expected return at the same risk level by borrowing. Of course, borrowing like short sales, almost any financial mechanism can be abused. It can be used to take extreme and imprudent risk position. On the other hand, it can be used to enhance performance. Rejecting borrowing entirely would throw out positive opportunities. For example, consider an investor wishing to have a high portfolio with greater expected returns than offered by portfolio B. this investor would have the same expected return and less risk by buying port folio B and borrowing than by buying portfolio, which does not involve borrowing.

Returning to the concept of the efficient frontier, it is necessary to deal further into the subject of prudent investment. In an efficient frontier, an investor should never hold a security or portfolio that lie below that frontier. Because all single securities expect the risk less asset lie below the frontier, there is almost never a situation where a single security is efficient. All efficient portfolios are will diversified.

CAPITAL ASSET PRICING MODEL(CAPM)

The relevant risk for an individual asset is a systematic risk (or market –market risk) because non market risk can be eliminated by diversification, the relationship between an asset’s return and its systematic risk can be expressed by the CAPM, which is also called the security market (SML). The equation for the CAPM is as follows:

E(ri)=R+[E(rm)-R]bi

Where E (ri) is the expected return for an asset,
R is the risk-free rate (usually assumed to be a short-term T-bill rate)
E (rm)equals the expectecmarket return (usually assumed to be the S&P500)
Bi denotes for the asset’s beta.

The CAPM is an equilibrium model for measuring the risk-return tradeoff for all asset s including both inefficient and efficient portfolios. A graph of the CAPM is given below:
[pic]
Figure representing : RISK EXPOSURE OF PORTFOLIO

FINDINGS:

Depicts two assets, U and O that are not in equilibrium on the CAPM. Asset U is undervalued and therefore , avary desirable asset to own. U”s price will rise in the market as more investors purchase it. However as U’s price goes up,its return falls. When U’s return falls to the return consistent with the beta on the SML, equilibrium is attained. With O,just the opposite takes place.investor will attempt to sell O,since it is overvalued and therefore, put down pressure on O’s price. When the return on asset O increases to the rate that is coinsistent with the beta risk level given by the SML, equilibrium will be achieved and down ward price pressure will cease.
Assumptions underlying CAPM

The Capital Asset Pricing Model {CAPM} is an equilibrium model. The derivation of the model is based on several assumptions about investors and the market, whichwe present below for completeness. Investors are assumed to take in to account only two parameters of return distribution, namely the mean and the varience , in making a choice of portfolio . in other words, it is assumed that a secutity can be completely represented in terms of its expected return and varience and those investors behave as if a security were a commodity with two attributes,namely , expected return which is a desirable attribute and varience, which is an undesirable attribute. Investors are supposed to be risk averse and for every additional unit of risk they take, they demand compensation in terms of expected returns.

Again the capital market is assumed to be efficient. An efficient market implies that all new information which could possibly affect the share price becomes available to all the investors quickly and more or less simultaneously. Thus in an efficient market no single investor has an edge over another it terms of the information possessed by him since all investor are supposedly well informed and rational,meaning that all of them process the available information more or less alilke. And finally in an efficient market, all investors are price takers, i.e., no investor are so big as to affect the price of security significantly by virtue of his trading in that security

The Capital Asset Pricing Model also assumes that the difference between lending and borrowing rates are negligibly small for investors. Also, the investors are assumed to make a single period investment decisions. The cost of transactions and information are assumed to be negligibly small. The model also ignores the existence of taxes, which may influence the investor’s behavior.

The fact that some of the above assumptions are some what restrictive has attracted considerable criticism of the model. This however need not distract us from main thrust of the model. The Capital Asset Pricing Model merely implies that in a reasonably well-functioning market where a large number of knowledgeable financial analysts operate, all securities will yield returns consistence with their risk, since if this were not is, the knowledgeable analysts will be able to take advantage of the opportunities for disproportionate returns and there by reduce such opportunities.

Hence, according to CAPM, in an efficient market, returns disproportionate to risk are difficult to come by. assumptions concerning the investor behavior, market efficiency, lending and borrowing rates, etc., are to be taken not in their literal sense, but rather as approximate conditions. Factors such as taxes, transaction cost, etc, can be easily incorporated in to the model for greater rigor.

The security market line (SML) express the basic theme of the CAPM i.e.., expected return of a security increases linearly with risk, as measured by Beta. It can be drawn as follows.

[pic]

The SML is upward sloping straight line with an intercept at the risk free return securities and passes through the market portfolio. The upward slope of the line indicates that greater expected return accompany higher level of Beta. In equilibrium, each security or portfolio lies on the SML.

In the above figure that the return expected from portfolio or investment is a Combination of risk free return plus risk premium. An investor will come forward to take risk only if the return on investment also includes risk premium.
The CAPM has shown the risk and return relationship of a portfolio in the following formula.

E (Ri) =Rr +ßi-(Rm-Rr)

Where

E (Ri) = expected rate of return on any individual security (or portfolio of security)

Rr =Risk free rate of return

Rm =expected rate of return on the market portfolio.

ßi =market sensitivity index of individual security (or portfolio of securities)
Stock Exchanges

Capital markets in India have considerable depth. There are 22 stock exchanges in India. Ahmedabad, Delhi, Calcutta, Madras and Bangalore are major ones amongst the other stock exchanges. These stock exchanges are served by 3,000 brokers and 20,000 sub-brokers. A number of providers for merchant banking services exist.

The market capitalization of the Bombay Stock Exchange (BSE) alone was around Rs.5 trillion in December 1994.This makes it one of the largest emerging stock markets in the world. A number of other cities also have stock markets.

There are two other exchanges in Bombay :-
National Stock Exchange (NSE)
Over The Counter Exchange of India (OTCEI)

The regulatory agency which oversees the functioning of stock markets is the Securities and Exchange Board of India (SEBI), which is also located in Bombay.

India has one of the most active primary markets in the world, with roughly 130 public issues taking place each month.

The National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and OTCEI have already introduced screen-based trading. All other exchanges (except Guwahati, Magadh and Bhubaneshwar) are to introduce full computerisation and screen-based trading by 30 June 1996. This will bring about greater transparency for investors, reduce spreads, allow for more effective monitoring of prices and volumes and speed up settlement.

National Stock Exchange of India (NSE)

The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000

Currently, 200 large companies are traded on the NSE; that list is expected to gradually expand as the exchange stabilizes. The NSE is a computerized market for debt and equity instruments.

The NSE, located in Bombay, was set up in 1993 to encourage stock exchange reform through system modernization and competition. NSE's reach has been extended to 21 cities, of which 6 cities do not have their own stock exchanges. NSE plans to cover 40 cities by end-1996. The NSE has a very modern implementation of trading using contemporary technology in computers and communication. It is an electronic screen based system where members have equal opportunity and access for trading irrespective of their location, since they are connected by a satellite network.
The number of members trading on the exchange has increased from the 227 at commencement to 600 members as of November 1995. NSE, thus, helps to integrate the national market and provides a modern system with a complete audit trail of all transactions. In a further effort to improve the settlement system and minimize the risks associated therein, NSE has set up a subsidiary - National Securities Clearing Corporation (NSCC). On par with clearing corporations the world over, NSCC will shortly guarantee settlement of trades executed and settled through it. The instruments traded are treasury bills, government security, and bonds issued by public sector companies.

The government of India issues around Rs.70 billion of debt instruments per year. The market is still nascent; but, trading volumes are steadily rising. Average daily turnover in stocks have increased from Rs.70 million in November 1994 to Rs.990 million during July 1995.

OBJECTIVES:

1) To establish a nation wide trading facility for equities, debt instruments and hybrids. 2) To ensure equal access to investors all over the country through appropriate communication network. 3) To provide a fair, efficient and transparent securities market to investors using an electronic communication network. 4) To enable shorter settlement cycle and book entry settlement system. 5) To meet current international standards of securities market.

PROMOTERS:
Industrial Development Bank of India (IDBI)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Financing Corporation of India (IFCI)
Life Insurance Corporation of India (LIC)
State Bank of India (SBI)
General Insurance Corporation (GIC)
Bank of Baroda
Canara Bank
Corporation Bank
Indian Bank
Oriental Bank of Commerce
Union Bank of India
Punjab National Bank
Infrastructure Leasing and Financial Services
Stock Holding Corporation of India
SBI capital market

NSE-NIFTY

The national Stock Exchange on April 22, 1996 launched a new Equity Index. The NSE-50. The new Index which replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the new segment of futures and options. “Nifty” means National Index for Fifty Stock.
The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an aggregate market capitalization of around Rs.170000crores. All companies included in the index have a market capitalization in excess of Rs.500crores each and should have traded for 85% of trading days at an impact cost of less than 1.5%.
The base period for the index is the close of prices on Nov 3,1995 which makes one year of completion of operation of NSE’s capital market segment. The base value of the Index has been set at 1000.

BOMBAY STOCK EXCHANGE

The Stock Exchange, Mumbai, Popularly as “Bombay Stock Exchange” (BSE) was established in 1875 as The Native Share and Stock Brokers Association”, as a voluntary non-profit making association. It has evolved over the year into its present status as the premier Stock Exchange in the country. It may be noted that the Bombay Stock Exchange is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.

The Bombay Stock Exchange, while providing an efficient and transparent market for the trading in securities, upholds the interests of the investors and ensures redressal of their grievances, whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by making available necessary informative inputs and conducting investor education programs.

A Government Board comprising of 9 elected Directors (one third of them retire every year by rotation), Two SEBI Nominees, Seven Public representatives and an Executive Director is the Apex Body, which decides the policies and regulates the affairs of the Bombay Stock Exchange. The executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Bombay Stock exchange.

SECURITIES TRADED:

The securities traded in the BSE are classified in to three groups namely specified shares of ‘A’ group and non-specified securities. The latter is sub-divided into ‘B1’ and ‘B’ groups. ‘A’ group contains the companies with large outstanding shares, good track record and large volumes of business in the secondary market. Settlements of all the shares are carried out through the Clearing House.

| |Number of Listed |Market Capitalization (In|Annual Turnover |Average Daily Turnover |
|Year |Companies |Crores) |(In Crores) |(Rs. In Billion) |
|1994-95 |4702 |7355 |677 |1.8 |
|1995-96 |5602 |5365 |501 |2.2 |
|1996-97 |5832 |4639 |1243 |5.2 |
|1997-98 |5853 |5630 |2706 |8.5 |
|2000-03 |6000 |5479 |2449 |11.5 |

In order to enable the market participants, analysts etc., to track the various ups and downs in the Indian Stock Market, the Exchange has introduced in 1986 an equity stock index called BSE-SENSEX that subsequently became the barometer of the moments of the share prices in the Indian Stock Market. It is a “Market Capitalization-Weighted” index of 30 components. The base year of SENSEX is 1978-79. The SENSEX is widely reported in both domestic and international markets through print as well as electronic media.

SENSEX is calculated using a market capitalization weighted method. As per this methodology, the level of the index reflects the total market value of all 30component stocks from different industries related to particular base period. The total market value of a company is determined by multiplying the price of its stock by the number of shares outstanding. Statisticians call an index of a set of combined variables (such as price and number of shares) a composite index. An indexed number is used to represent the results of this calculation in order to make the value easier to work with and track over a time. It is much easier to graph a chart based on indexed values than one based on actual values.

In practice, the daily calculation of SENSEX is done by dividing the aggregate market of the 30 Companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original based period value of the SENSEX. The divisor keeps the index comparable over a period of time and if the reference point for the entire Index maintenance adjustments. SENSEX is widely used to describe the mood in the Indian Stock Markets.

Base year average is changed as per the formula:

New Base Year Average =
Old Base Year Average * (New Market Value/Old Market Value)

RECENT DEVELOPMENTS IN INDIAN STOCK MARKET

Many steps have been taken in recent years to reform the Stock Market such as:

❖ Regulation of Intermediaries. ❖ Changes in the Management Structure. ❖ Insistence on Quality Securities. ❖ Prohibition of Insider Trading. ❖ Transparency of Accounting Processes. ❖ Strict supervision of Stock Market Operations. ❖ Prevention of Price Rigging. ❖ Encouragement of Market Making. ❖ Discouragement of Price Manipulations. ❖ Introduction of Electronic Trading. ❖ Introducing of Depository System. ❖ Derivates Trading. ❖ International Listing.

STOCK EXCHANGES IN INDIA

|S.NO |NAME OF THE STOCK EXCHANGE |YEAR |
|1 |Bombay Stock Exchange. |1875 |
|2 |Hyderabad Stock Exchange. |1943 |
|3 |Ahmedabad Share & Stock Brokers Association. |1957 |
|4 |Calcutta Stock Exchange Association Limited |1957 |
|5 |Delhi Stock Exchange Association Limited |1957 |
|6 |Madras Stock Exchange Association Limited |1957 |
|7 |Indoor Stock Brokers Association. |1958 |
|8 |Ban galore Stock Exchange. |1963 |
|9 |Cochin Stock Exchange. |1978 |
|10 |Pune Stock Exchange Limited |1982 |
|11 |U.P Stock Exchange Association Limited |1982 |
|12 |Ludhiana Stock Exchange Association Limited |1983 |
|13 |Jaipur Stock Exchange Limited |1984 |
|14 |Gauhati Stock Exchange Limited |1984 |
|15 |Mangalore Stock Exchange Limited. |1985 |
|16 |Maghad Stock Exchange Limited, Patna. |1986 |
|17 |Bhuvaneshwar Stock Exchange Limited |1989 |
|18 |Over the Counter Exchange of India, Bombay |1989 |
|19 |Saurasthra Kutch Stock Exchange Limited |1990 |
|20 |Vadodara Stock Exchange Limited |1991 |
|21 |Coimbatore Stock Exchange Limited |1991 |
|22 |Meerut Stock Exchange Limited |1991 |
|23 |National Stock Exchange Limited |1992 |
|24 |Integrated Stock Exchange |1999 |

STOCK EXCHANGES IN WORLD
|S.NO |COUNTRY |INDEX |
|1. |Russia |Moscow Times |
|2. |Argentina |Mer Val |
|3. |Thailand |SET |
|4. |Pakistan |Karachi 100 |
|5. |Indonesia |Jak Comp |
|6. |US |NASDAQ |
|7. |Czech Republic |PX50 |
|8. |Mexico |IPC |
|9. |Brazil |Bovespa |
|10. |Japan |Nikkei 225 |
|11. |Malaysia |KISE Comp |
|12. |China |Shanghai Comp |
|13. |Singapore |Straits Times |
|14. |South Korea |Seoul Comp |
|15. |Spain |Madrid General |
|16. |US |S & P 500 |
|17. |India |SENSEX |
|18. |US |Dow Jones |
|19. |Germany |Dax |
|20. |Hong Kong |Hang Seng |
|21. |Canada |S & P TSX Composite |
|22. |India |NIFTY |
|23. |UK |FTSE 100 |
|24. |Australia |All Ordinaries |
|25. |France |CAC 40 |

Portfolio Management Services

Fortis Securities Limited
A RANBAXY Promoter Group Company

Fortis securities

ϖFortis was founded in 1996 by late Dr. Parvinder Singh (CMD – Ranbaxy Laboratories Limited) with the vision to provide integrated financial care driven by the relationship of trust and confidence.

ϖFortis aims to be India’s first truly multinational company to provide financial services across the globe.

ϖFortis has an extensive network of over 110 branches and 275 business associates through its regional, zonal and branch offices served by 1200 employees.

About company

Fortis is promoted, controlled and managed by the promoters of Ranbaxy. It was founded with the vision of providing integrated financial driven by relationship of trust. To realize its vision, both, fund –based and non-fund based financial services are provided to its clients.

The growing staff financial institutions with whom Fortis is empanelled, as approved broker, is a reflection of the high levels of services maintained .Besides servicing institutional clients, Fortis also pioneered the concept of partnership to reach multiple locations in order to effectively service its large base of individual clients . They greatly benefit by its strong research capability , which encompasses fundamentals as wells technicals.

SERVICES

Core

❖ Equity & Derivative trading

❖ Commodity Trading

❖ Depository services

Facilitation

❖ Private client management .

❖ NRI Desk Management .

❖ Margin financing.

Advisory

❖ Research & Technical Analysis .

❖ Portfolio Management Services.

❖ Mutual fund Investments.

❖ International Advisory-Equity& Commodity Trading.

Objective of PMS at FORTIS
The returns from the debt asset class have fallen significantly in last few years. The availability of alternate investment avenues has also been shrinking. In such a scenario, one doesn’t have a choice except to look at equity for investing some part of his investment so that the overall yield on the total investment can be increased.

Though, equity carries a risk and howsoever much one may desire, the risk can’t be eliminated. However the risk can certainly be managed (or controlled) with professional expertise. This professional expertise developed over the long years of operations in financial markets is being offered by Fortis. Fortis PMS is a dedicated service aimed at managing the portfolios of the investors who feel the need of professional approach to optimize the returns from their investments.

Besides its long experience of operating in financial markets. Fortis offers many other advantages to its investors. Continuing with its tradition of innovations. Fortis has introduced some new features in its PMS as well. These include giving the advantage of its being a Depository participant to the investor by not charging him for any custodial charges. Additionally, Fortis would be using other brokers to buy and sell stocks in its PMS despite having its own broking service so as to avoid conflict of interest, not to mention the fact that it has set itself stuff return targets before charging fee to investors.

Investors philosophy at Fortis is driven by following fundamental principals.

❖ Optimal returns ❖ Focus on risk control ❖ Effort towards absolute returns ❖ Stock specific research based approach ❖ Willing to under perform in Rising market,But aiming to outperform in falling market.

Advantage PMS

Mutual Fund Vs PMS

Investment Philosophy

Investment Process

Our Competitive Edge

Product Offerings

PANTHER

TORTISE

ELEPHANT

1. Objective Aims to generate steady return over a longer period by investing in securities selected only from BSE 100 index.

2. Strategy Investment strategy would be to invest in the companies which form part of BSE 100 Index as these companies have steady performance and reduces the liquidity risk in the market.

3. Suitability Low Risk Low Return

4. Investment Horizon 3 to 4 years

5. Portfolio Turnover Low

Valuation Report

\

Holding Statement

[pic]

Transaction Report

Gain/loss Report

Corporate Action

----------------------- 6. Customised Portfolio

7. Transparency

8. Benefit from tactical cash management

9. High level of client interaction

10. Cost efficient

11. Hassle free operation

12. Diversification across or within the asset class

13. SEBI regulated

Daily

Monthly

Updates

No

Yes

Cross subsidization

Yes

No

Transparency

As per risk/reward appetite of the investor

No

Portfolio Profiling

No

Yes

Sector / Stock limits

Option of fixed / performance based fees

Fixed

Fee structure

Personalized services in the form of access to fund manager and dedicated relationship manger

No personalized service available

Services

No entry / Exit loads

Entry/Exit loads

Costs

Customized product

Mass product

Product

PMS

Mutual Fund

14. Stock specific selection procedure based on fundamental research for making sound investment decisions.

15. Focus on minimizing investment risk by following rigorous valuation disciplines.

16. Effort is to enhance absolute returns for investors.

17. Belief in serving investors by a disciplined investment approach – which combines an understanding of the goals and objectives of the investor with a fine tuned strategy backed by research.

Investment Process

Identification

Valuation

Validation

Acquisition

Revision

Exit

1. Reviewing publicly available historical information.

2. Management meetings to get a better understanding of industry trends, structure and peculiarities related to the industry.

3. Preparing forecasted earnings model based on assumptions.

4. Review meeting with the company management to validate the assumptions.

5. Accessing the competitive advantage the company enjoys vis-à-vis buyers, suppliers, substitutes, barriers to entry.

6. Evaluate management capabilities and corporate governance standards.

7. Using multiple valuation process for valuing the company which includes relative valuations (P/E,PEG, P/BV etc.), determining intrinsic value based on DCF and sum of parts valuation.

8. Arranging periodic review meeting with the management to revalidate the underlying assumptions.

9. We follow strict selling discipline both in booking profits as well as cutting losses in case the underlying premise of buying into a particular stock has changed.

18. Investment team consisting of fund managers and headed by CIO which ensures collective decision making.

19. More than 35 years of cumulative work experience in capital markets.

20. Institutional research team comprising of 12 professionals having an experience ranging from 2-10 years.

21. Benefit from a network of empanelled brokers and analysts from a wide spectrum of broking outfits.

22. Capabilities to identify emerging businesses at a nascent stage backed by primary research.

Panther

Tortise

Elephant •
23. Objective Aims to achieve higher returns by taking aggressive positions across sectors and market capitalization

24. Strategy Investment strategy would be to invest across the sectors with a view to take advantage of various market conditions. Efforts would be made to find out stocks which have triggers to become multi-baggers in the market backed by a turn-around, or new product introduction, idea marketing, unveiling of valuation and recognition of stock in the market.

25. Suitability High risk high return

26. Investment Horizon 1-2 years

27. Portfolio Turnover High

28. Objective Aims to achieve gradual growth in the portfolio value over a period of time by way of careful and judicious investment in fundamentally strong and attractive valued shares.

29. Strategy Investment strategy would be to invest across the sectors with a view to take advantage of lower valuation of the companies with high growth potential and consistent track record over a longer period of time.

30. Suitability Medium Risk Medium Return

31. Investment Horizon 2 to 3 years

32. Portfolio Turnover

Medium

Performance – Tortoise

[pic]

118.0

69.6

39.8

Since Inception

1 Year

6 Months

# Absolute Returns as on 15th December, 2005

# Inception as on 7th September, 2004

Performance - Panther

[pic]

129.6

71.0

30.4

Since Inception

1 Year

6 Months

# Absolute Returns as on 15th December 2005
# Inception as on 7th September, 2004

Investment Details

33. Minimum Investment Amount: - Resident Investors – Rs. 25 Lacs - Non Resident Investors – Rs. 50 Lacs

34. Mode of Inflow: Inflow can be in the form of cash and/or securities

Portfolio Disclosure

35. Access thru Web: - Clients can see the portfolio details on web 24*365 Valuation Report Holdings Statement Transaction Report Gain/Loss Report Corporate Action

36. Monthly Report: ./0KLM_ÐÒÞ¾ Ë d o p v w ? Ì Í Ü L
÷ñêÚÊÚÆ´¨š‹¨Æ‹?‹?Æ´o]´?RC?h‰oD5?;?CJOJQJ^Jh‰oD;?OJQJ^J#h[Î5?;?>*[pic]CJ$OJQJ^JaJ$#h#“5?;?>*[pic]CJ$OJQJ^JaJ$h‰oDOJQJ^Jh‰oD;?CJ OJQJ^JaJ h‰oDCJ OJQJ^JaJ h‰oDOJQJ^JaJ #h‰oD5?;?>*[pic]CJ$OJQJ^JaJ$h‰oDh#“5?;?>*[pic]OJContaining all the details about the portfolio and a monthly news letter on Markets.

37. Annual Audited Balance Sheet

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