Download - Sneha Final Project Report

8/8/2019 Sneha Final Project Report

1/69

PROFIT MAXIMIZATION AND WEALTH CREATION FORINVESTORS

A Report of

Study on

Profit Maximization And Wealth Creation For Investors

For

Reliance Money Ltd

In partial fulfillment of the

Post Graduate Diploma in Management

Under the Guidance of

Prof.Jose Paul

By

SNEHA ANAND

BATCH 18

FK - 1941

SCMS COCHIN

SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN-06.

September 2010

1

S C M SS C M SS C M S


2/69


CONTENTS

2


3/69


EXECUTIVE SUMMARY

The project contains a brief description of how an investor can increase his profit.

The project will help in knowing the way to maximize the profit of investors. It will

involve the Reliance initiative to do so.

A survey was conducted to gather primary data to judge the factors that influence

investors before they invest in any of the investment tools. With this back ground an

attempt has been made in this paper to categorize investors based on various

demographic factors such as age, sex, income level and occupation.

The study was based on both primary and secondary data. Primary data was used in order

to find out the factor that affect investors investment decision. For this 100 investors

were surveyed by using a questionnaire. Secondary data was collected from the different

websites including the company website and journals in order to understand the main

factors that affect the investment of the investors. It was found that the main factors that

influence the investment were rational decision making, risk appetite of the investors,

reputation of the management, companys financial statement and government decisions .

However the primary factors were the risk appetite of the investors and government

regulaions.

3


4/69


Chapter -1

INTRODUCTION AND THEORETICAL

BACKGROUND

4


5/69


INTRODUCTION

5


6/69


THEORETICAL BACKGROUND

PROFIT MAXIMIZATION AND WEALTH CREATION

The process of Wealth Creation is understood by knowing what Wealth Management is.

Wealth Management is classified as an advanced type of financial planning that provides

High net worth individuals and families with private banking, estate planning, asset

management, and investment management, with the goal of sustaining and growing long-

term wealth. The usefulness of and the need for wealth management is inherent in its

name.

Wealth Management is an extension of financial advisory services done under Financial

Planning and involves delivery of a suite of services and managing relationships with the

clients. Wealth Management encompasses the following aspects a complete range of

financial planning services like Risk Management, Investment Management, Retirement

Planning, Real Estate Planning, Tax Planning, Inheritance Planning and charitable

giving. The difference between Financial Planning and Wealth Management is that the

former is a sole advisors effort while the latter is generally a team effort.

The Project involves the process of wealth creation of an individual through properfinancial planning at the right time depending on the objectives which an individual sets

before doing a financial planning. "Wealth" has come to mean an abundance of items of

economic value, or the state of controlling or possessing such items, and encompasses

money, real estate and personal property. In many countries wealth is also measured by

reference to access to essential services such as health care, or the possession of crops

and livestock. An individual who is wealthy, affluent, or rich is someone who has

accumulated substantial wealth relative to others in the society or reference group. In

economics, wealth refers to the value of assets owned minus the value of liabilities owed

at a point in time.

Wealth has two components i.e. Wealth Preservation and Wealth Creation.

Wealth Preservation involves just preserving the wealth or money which is invested into

it. Examples of Wealth Preservation are Fixed Income Instruments, Savings A/c, and

6


7/69


Recurring Deposits, Investing in Post Office, PPF and other Bonds. In wealth

Preservation the returns are predictable and the returns are low.

Wealth Creation means creating wealth and it is not created overnight .It is a process

which takes its own time .But in Wealth Preservation we invest in certain instruments

and we reap the benefits out of it by earning returns. Wealth Creation instruments are

Investing in Metals like gold and silver, Real Estate, Equity, which is further divided into

Direct Equities and Mutual Funds, Foreign Exchange Instruments, Insurance which is

further divided into Market Linked and Traditional Endowment etc.

The process of wealth creation takes long time. It involves a process of asset allocation.

The assets are allocated based on its risk, safety, liquidity, returns and the tenure that one

is willing to hold. Then the holding capacity has to be decided i.e. short or medium or

long term. Low risk and high safety always ends up offering lower returns and high

degree of risk & safety gives way to higher rate of returns which is evident in the tools

we choose.

Forms of Wealth Creation:

There are many options for an investor to create wealth - one can invest in fixed incomeinstruments or invest in equities. The former one is called Wealth Preservation and the

latter is called Wealth Creation. In wealth preservation the money is invested in

instruments like Fixed Income Instruments, Savings A/c, and Recurring Deposits,

Investing in Post Office, PPF and other Bonds and we get a fixed return on the invested

amount. The latter one i.e. Wealth Creation is the process where in we actually create

wealth. An individual chooses to invest in equities and want to have return on his money

and create wealth If an individual invests in the equities i.e. shares of a company he

would definitely expects a return from it. The various forms or ways in which an

individual expects to create wealth by investing in equities are from dividend, bonus,

stock split, ESOPs, right issue or any other monetary benefits availed by investor from

the company.

7


8/69


CAPITAL MARKET:-

Capital Markets comprise of the Equities Market and the Debt Markets. Debt Markets are

markets for the issuance, trading and settlement in fixed income securities of various

types and features. Fixed income securities can be issued by almost any legal entity like

Central and State Governments, Public Bodies, Statutory corporations, Banks and

Institutions and Corporate Bodies.

Introduction to Fixed Income Instruments:-

Fixed Income securities are one of the most innovative and dynamic instruments evolved

in the financial system ever since the inception of money. Fixed Income securities offer

one of the most attractive investment opportunities with regard to safety of investments,

adequate liquidity, and flexibility in structuring a portfolio, easier monitoring, long term

reliability and decent returns. They are an essential component of any portfolio of

financial and real assets, whether in form of pure interest bearing bonds, innovative and

varied type of debt instruments or asset-backed mortgages and securitized instruments.

Wholesale Debt Market Segment (WDS):-

The Reserve Bank of India permitted the Banks, Primary Dealers and the Financial

Institutions in India to undertake transactions in debt instruments among themselves or

with non-bank clients through the members of Bombay Stock Exchange Limited (BSE).This notification paved the way for the Exchange to commence trading in Government

Securities and other fixed income instruments. The Wholesale Debt Segment of the

Exchange commenced its' operations on June 15, 2001.

The Debt Segment offers the market participants in the Wholesale Debt Market an

efficient and transparent trading mechanism through its GILT System. The GILT system

is envisaged to become the single point trading platform for all types of Debt securities

and instruments. The GILT system will over a period of time provide trading facilities for

Central and State Govt. securities, T-Bills, Institutional bonds, PSU bonds, Commercial

Paper, Certificates of Deposit, Corporate debt instruments and the new innovative

instruments like municipal securities, securitized debt, mortgage loans and STRIPs.

GILT facilitates faster and efficient price dissemination through the Touchline of the

Trading System. All relevant information which are of crucial importance in the trading

8


9/69


process like the Accrued Interest and Delivery Value are readily available in the

system(.) A Yield Calculator is made available both separately and as part of the various

order Entry and trade reporting screens.

Retail Debt Segment (REDS):-

Opportunities for the Indian investors in the Retail Debt Markets in the new millennium,

presents a vast kaleidoscope of whose knowledge and participation hitherto has been

restricted to the Equities markets in India. The development of the Retail Debt Market

has engaged the attention of the policy makers, regulators and the Government in the past

few years. The potential of the Retail Debt Markets can be gauged from the investor

strength of more than 40 million in the Indian Equities market who have powered the

tremendous growth and transformation of the stock markets in recent times. Recognizing

this opportunity at a very early date, it has been consistently in the forefront of the

campaign for the creation of a Retail Debt Market and has consistently expounded the

potential and need for the retail trading in G-Secs in the past few years in various

important forums and to the key regulatory authorities.

Emergence of the Retail Market:-

It would be surprising to know that a retail debt market was at one point of time verymuch present in India. Right through the forties and the fifties and until the early sixties,

a good proportion of the holdings of Govt. securities were concentrated with individual

investors. Available statistics indicate that more than half of the holdings in Govt.

securities were concentrated with retail investors in the early 50s.

Today, there exists an inherent need for households to diversify their investment portfolio

so as to include various debt instruments and especially Government securities. The

growing investments in the Bond Funds and the Money Market Mutual Funds are a sign

of the increasing recognition of this fact by the retail investors.

Retail investors would have a natural preference for fixed income returns and especially

so in the current situation of increasing volatility in the financial markets.

9


10/69


INVESTMENTS

Savings form an important part of the economy of any nation. With the savings invested

in various options available to the people, the money acts as the driver for growth of the

country. Indian financial scene too presents a plethora of avenues to the investors.

Though certainly not the best or deepest of markets in the world, it has reasonable

options for an ordinary man to invest his savings.

An investment can be described as perfect if it satisfies all the needs of all investors. So,

the starting point in searching for the perfect investment would be to examine investor

needs. If all those needs are met by the investment, then that investment can be termed

the perfect investment.

Most investors and advisors spend a great deal of time understanding the merits of the

thousands of investments available in India. Little time, however, is spent understanding

the needs of the investor and ensuring that the most appropriate investments are selected for

him.

The Investment Needs of an Investor

By and large, most investors have eight common needs from their investments:

1. Security of Original Capital;2. Wealth Accumulation;

3. Comfort Factor;

4. Tax Efficiency;

5. Life Cover;

6. Income;

7. Simplicity;

8. Ease of Withdrawal;

9. Communication.

10


11/69


12/69


needs. Access to a long-term investment at short notice can only be had at a substantial

cost.

Communication: This refers to informing and educating investors about the

purpose and progress of their investments. The need to communicate increases when

investments are threatened.

Security of original capital is more important when performance falls.

Performance is more important when investments are performing well .

Failures engender a desire for an increase in the comfort factor.

Perfect investment would have been achieved if all the above-mentioned needs had been

met to satisfaction. But there is always a trade-off involved in making investments. As

long as the investment strategy matches the needs of investor according to the priority

assigned to them, he should be happy.

The Ideal Investment strategy should be a customized one for each investor depending on

his risk-return profile, his satisfaction level, his income, and his expectations. Accurate

planning gives accurate results. And for that there must be an efficient and trustworth

roadmap to achieve the ultimate goal of wealth maximization.

Choosing the Right Investment Options

After understanding the concept of investment, the investors would like to know how to

12


13/69


go about the task of investment, how much to invest at any moment and when to buy or

sell the securities, This depends on investment process as investment policy, investment

analysis, valuation of securities, portfolio construction and portfolio evaluation and

revision. Every investor tries to derive maximum economic advantage from his

investment activity. For evaluating an investment avenues are based upon the rate of

return, risk and uncertainty, capital appreciation, marketability, tax advantage and

convenience of investment. The following Table should give the clear picture relating to

the investors investment decisions in various financial market instruments. The choice

of the best investment options will depend on personal circumstances as well as general

market conditions. For example, a good investment for a long-term retirement plan may

not be a good investment for higher education expenses. In most cases, the right

investment is a balance of three things : Liquidity, Safety and Ret

Investment Options in India

13


14/69


Fixed Deposits - They cover the fixed deposits of varied tenors offered by the

commercial banks and other non-banking financial institutions. These are generally a low

risk prepositions as the commercial banks are believed to return the amount due without

14


15/69


default. By and large these FDs are the preferred choice of risk-averse Indian investors

who rate safety of capital & ease of investment above all parameters. Largely, these

investments earn a marginal rate of return of 6-8% per annum.

Government Bonds - The Central and State Governments raise money from the market

through a variety of Small Saving Schemes like national saving certificates, Kisan Vikas

Patra, Post Office Deposits, Provident Funds, etc. These schemes are risk free as the

government does not default in payments. But the interest rates offered by them are in

the range of 7% - 9%.

Money-back insurance - Insurance in India is mostly sold and bought as investment

products. They are preferred because of their add-on benefits like financial life-cover,

tax-savings and satisfactory returns. Even if one does not manage to save money and

invest regularly in financial instruments, with insurance, the policyholder has no choice.

If he does not pay his premiums on time, his insurance cover will lapse. Money-back

Insurance schemes are used as investment avenues as they offer partial cash-back at

certain intervals. This money can be utilized for children s education, marriage, etc.

Endowment Insurance - These policies are term policies. Investors have to pay the

premiums for a particular term, and at maturity the accrued bonus and other benefits are

returned to the policyholder if he survives at maturity.

Bullion Market - Precious metals like gold and silver had been a safe heaven for

Indian investors since ages. Besides jewellery these metals are used for investment

purposes also. Since last 1 year, both Gold and Silver have highly appreciated in value

both in the domestic as well as the international markets. In addition to its attributes as

a store of value, the case for investing in gold revolves around the role it can play as a

portfolio diversifier.

15


16/69


Stock Market - Indian stock markets particularly the BSE and the NSE, had been a

preferred destination not only for the Indian investors but also for the Foreign investors..

Although Indian Markets had been through tough times due to various scams, but history

shows that they recovered very fast. Many types of scrip had been value creators for the

investors. People have earned fortunes from the stock markets, but there are people who

have lost everything due to incorrect timings or selection of fundamentally weak

companies.

Real Estate - Returns are almost guaranteed because property values are always on the

rise due to a growing world population. Residential real estate is more than just an

investment. There are more ways than ever before to profit from real estate investment.

Mutual Funds - There is a collection of investors in Mutual funds that have

professional fund managers that invest in the stock market collectively on behalf of

investors. Mutual funds offer a better route to investing in equities for lay investors. A

mutual fund acts like a professional fund manager, investing the money and passing the

ret urns to its investors. All it deducts is a management fee and its expenses, which are

declared in its offer document.

Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds in terms oftheir structure and functioning; premium payments made are converted into units and a

net asset value (NAV) is declared for the same. In traditional insurance products, the sum

assured is the corner stone; in ULIPs premium payments is the key component.

Chapter 2

16


17/69


RESEARCH METHODOLOGY

In financial markets, expectations of the investors play a vital role. They influence the

price of the securities; the volume traded and determines quite a lot of things in actual

practice. These expectations of the investors are influenced by their perception and

17


18/69


humans generally relate perception to action.

The objective of the survey was to categorize investors as being inclined towards

investment products based on certain characteristic such as sex, age, occupation, annual

income etc. In addition the time horizon of investment and the the real need/purpose of

investment were studied and categorized based on the above demographic factors.

Objective of the study:

1. To understand factors those decide investment.

2. To find the correlation between the risk appetite of the investors and proportion of

assets allocated in different instruments.

3. Factors that affect the profit maximization of investors.

SAMPLING

The sample consists of clients of the company and various investors outside the

company. For this purpose simple random sampling was used which include a random

selection of the investors.

DATA CAPTURE INTRUMENTS USED:

Information was collected by interview method, observation method etc. A structured

questionnaire was used.

RESEARCH TECHNIQUES AND APPLICATIONS:

The type of research was of descriptive in nature as it involves the study of factors that

affect the investors decision. This was done by studying how the investors analyze the

risks and returns associated with various funds. The study was also qualitative in nature

because it involves understanding the benefits of various investment option to the

investors.

18


19/69


DATA COLLECTION METHODS:

METHODOLOGY

The data collected includes both primary and secondary sources.

Primary source collection through interaction with investor and questionnaire, case

study.

Secondary sources include articles from business magazines, journals and internet

sources, individual corporate website, value research, CMIE Prowess,Ebsco

DESIGNING A QUESTIONAIRE

To understand the savings avenue preference, scheme preference, time horizon and

objectives for investment and to identify the information sources influencing investment

decision, and the preferred mode of communication, a questionnaire (ANNEXURE I)

was designed and the respondents were asked to rank their preferences on a ranking

scale.

The ranks were ascertained by obtaining the weighted mean value of the responses.

To identify the factors that influence the investors fund/scheme selection, 14 variables

were identified through evidence from past research. Based on theory, past research,

and personal judgment, the factors that could influence the investors in their selection ofinvestment was first grouped into 4 major groups important factors, internal

environment of organization, external environment of organization and news. Then

the 14 identified variables were classified under the appropriate group as follows

IMPORTANT FACTORS

1. Age is an important factor in deciding the type of investment option.

2. Rational decision in stock market often leads to profit maximization and wealth

creation.

3. Income level of a person decides the type of investment option for you.

19


20/69


4. Portfolio management by experts a good alternative to maximize your profit.

5. The risk appetite of the investors decide the proportion of assets allocated in different

instruments.

INTERNAL ENVIRONMENT OF THE ORGANISATION

6. The reputation of management and duration of operation.

7. The companys M&A, innovations & ventures.

8. The companys financial statements.

EXTERNAL ENVIRONMENT OF THE ORGANISATION

9. Past and the expected future trend of the industry.

10. Competitors.

11. Government Stability, support and fiscal incentives.

NEWS

12. Daily tips by brokers.

13. The performance of shares in the market in recent past is a good indicator of future.

14. Tips from the investment gurus, portfolio managers and stock analysts.

In the survey, the respondents were asked to rate the importance of the 14 specified

variables on a 5 point scale ranging from Strongly Agree (5) to Strongly Disagree (1).

The data for each of the 4 sub -groups were factor analyzed using Principal Component

Analysis with the objective of identifying the factor in the sub -group which turns out to

be significant in the investment selection.

DATA ANALYSIS PROCEDURE:

Data was analyzed on the basis of the questionnaire through frequency analysis and also

by using SPSS software.

20


21/69


LIMITATIONS OF THE STUDY

The time span for the study is short and hence only major aspects are considered

in this study.

Number of factors included in this study is subject to high volatility such as

market position for instance change from time to time.

Future prices of a stock or future rate of return or rate of interest cannot be

determined without proper research and hence the data may not give an accurate

picture.

Chapter 3

21


22/69


PROFILES

INDUSTRY PROFILE

The financial services industry, or financial services, includes a wide range of

companies and institutions involved with money, including businesses providing money

management, lending, investing, and insuring and securities issuance and trading

services.

22


23/69


Financial services refer to services provided by the finance industry. The finance

industry encompasses a broad range of organizations that deal with the management of

money. Among these organizations are banks, credit card, companies, insurance

companies, consumer finance companies, stock brokerages, investment funds and some

government sponsored enterprises.

PEST ANALYSIS OF THE INDUSTRY:

Political:

Politically speaking, funds are required for financing every activity and as India follows a

mixed economy pattern it is fair that private players be allowed in this industry with

some restrictions. As seen from the rise and fall of the financial institutions all over

America it can be seen to what extent are these companies able to influence the growth of

economy. Indian government has allowed a fair growth of these companies within the

guidelines of the finance ministry, SEBI, IRDA, etc.There are a lot of political and legal

restrictions when entering the financial services industry. Even though they have come

down in the past several years and it is expected that the government will increase the

FDI limit from 26% to 49% in the near future. But despite that there are several political

barriers.

Indian government has allowed a fair growth of these companies within the

guidelines of the finance ministry, SEBI, IRDA, etc.

As seen from the rise and fall of the financial institutions all over America it can

be seen to what extent are these companies able to influence the growth of

economy.

Economical:

There are no major economic barriers for entry into the financial services industry

especially when considering the distribution sector. The only investment to be made is in

infrastructure i.e. setting up offices. The main way to increase business for these firms is

through contacts. But care should be taken that the government should keep a check on

23


24/69


the type of products nurtured by these companies so that they are not able to make excess

profit at the cost of public money.

Economically, as said in the introduction these companies may provide as a buffer in

case of the failure of the primary system. Also these companies help to tap a majority of

the public savings to be used as investments for larger activities such as infrastructure

development, industrial development and over all GDP growth and growth of the

economy.

But care should be taken that the government should keep a check on the type of

products nurtured by these companies so that they are not able to make excess profit at

the cost of public money.

Social:

People usually are not attracted towards such companies which sell insurance and mutual

funds. But the economy can grow only if the public starts taking interest in the markets.

The companies emerged a certain section of the society which started taking interest in

the stock market and other products available for the growth in savings parallel to the

growth of the economy.

Technological:

Technologically, trading and using all the products have been made extensively possible

due to the advent of internet. The share certificates have been dematerialized. India is

very sound as far as network security is concerned. But the internet penetration has still

to be worked upon.

People are finding it increasingly convenient to use the facilities provided online.

The share certificates have been dematerialized.

The internet penetration has still to be worked upon but People are finding it

increasingly convenient to use the facilities provided online.

24


25/69


Company Profile: Reliance Money

Introduction:-

Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC)registered with the Reserve Bank of India under section 45-IA of the Reserve Bank of

India Act, 1934. RCL was incorporated as a public limited company in 1986 and is now

listed on the Bombay Stock Exchange and the National Stock Exchange (India).

Reliance Capital (RCL), a member of the Reliance Group, is a private sector

financial services company. Reliance Capital is engaged in asset management and mutual

funds, life and general insurance, private equity and proprietary investments, stock

broking and other financial services.

Reliance Money:-

Reliance Money is the financial services division of the Anil Dhirubhai Ambani

Group. The broking arm of reliance Capital is Reliance Money. Reliance Money is to

offer a common platform for investors to invest in all equity products, commodities,

forex, IPOs, insurance and other financial products.

. Thus Reliance Money is an endeavor to change the way India trades in financial

markets and avails of various financial services. Reliance Money ensures maximum

security with a unique security token to keep the online account safe.

Reliance Money is the fast growing financial broking business through the

introduction of its much awaited Reliance Money broking business. The company is

proposing a variation of the fixed flat fee structure that it claimed was the most

competitive in the industry.

Vision Statement of Reliance Money:-

To be world leader in the business by providing a convenient transparent and

trustworthy online platform for effective wealth management

25


26/69


Business Objectives of Reliance Money:-

To provide a wide variety of products to the market.

To enable the low income group also to participate in the business cycle.

To occupy the top slot in the minds of the public and prove to be a brand to rely

upon.

ORGANISATION STRUCTURE:-

PRODUCTS:

The company has a very broad product mix with a variety of product lines. The

product lines broadly, are:

Trading

Portfolio Management Services (PMS)

Wealth Management

Charting

NRI services

26


27/69


Insurance

Easy loans

Gold coins

The markets it caters to are:

Equity

Commodities

Derivatives

Currency

IPO

Mutual fund

Global market

The company has come up with various platforms for trading. They are:

Insta trade

Fast trade

Commodities Insta trade

Easy trade

Transfer funds for commodity trade

Mobile trading

Customers:-

The company segmented the market into three and provides services to suit the needs of

each segment. The basis of segment is as below;

The market which is new to online trading.

The market which has some experience investing online.

The market which is investing heavily online and which has good knowledge and

expertise in this field.

27


28/69


Thus the company has concentrated on each segment individually and brought the

whole market under its coverage.

28


29/69


Chapter 4

ANALYSIS AND INTREPRETATION OF DATA

FACTOR ANALYSIS

Data was collected from the dealers and investors of the company and outside the

company. They were asked to rate the factors in terms of their preference on 5 point

scale. The factors that were taken into consideration were:

1. Age

2. Rational Decision Making

29


30/69


3. Income

4. Portfolio Management By Experts

5. Risk Appetite Of Investors

6. Reputation Of Management

7. Companys M&A

8. Companys Financial Statement

9. Trend Of Industry

10. Competitors

11. Government Decision

12. Daily Tips By Brokers

13. Performance Of Share

14. Tips From Investment Gurus

INVESTOR PROFILE NUMBER OF RESPONDENTS

30


31/69


GENDER

Male 78

Female 22

AGE

Below 30 14

31 40 3641 50 30

Above 50 20

MARITAL STATUS

Married 58

Unmarried 42

OCCUPATION

Salaried 60

Business 26

Retired 14

ANNUAL INCOME (Rs.)

Below 1,50,000 141,50,000 3,00,000 54

3,00,000 4,00,000 14

Above 4,00,000 18

ANNUAL SAVING

Below 50,000 39

50,000 1,00,000 24

1,00,000 1,50,000 10

1,50,000 2,50,000 12

Above 2,50,000 15

Gender Distribution Sample

Gender Respondents %

Male 78 78

Female 22 22

31


32/69


Gender Distribution

Male

78%

Female22%

As from the above chart we came to know that majority of the respondents are the male

respondents i.e. 78% and 22% were the female respondents.

Age Distribution

Age Group Respondents %

Below 30 14 14

31 40 36 3641 50 30 30

Above 50 20 20

Age Distribution

41-50

30%

Above 50

20%

Below 30

14%

31-40

36%

Bel

31-

41-

Ab

32


33/69


ANALYSIS: - As it is very much clear from the above chart that majority of the

investors were from the age range of 31-40 and 41-50 i.e. 36 and 30 percent respectively.

Investment in the market requires some experience and the cycle of market. So after

having some better experience in market one can invest his or her money in a efficient

manner.

Income Distribution

Income Level Respondents %

Less Than Rs.1,50,000 14 14

Rs. 1,50,000 Rs. 3,00,000 56 56

Rs. 3,00,000 Rs. 4,00,000 14 14

More Than 4,00,000 18 18

Annual Income Distribution

150000 - 300000

54%

300000 - 400000

14%

Below 150000

14%Above 400000

18%

Below

1500

3000

Abov

The above chart shows that major respondents i.e., 54 % fall in the slab of income

ranging from Rs 1.5-3 lakh and followed by 18% of the

respondents fall under the range of more than 4 lakh. 14% of the respondents were in the

range 3-4 lakh and below 1.5 lakh

33


34/69


ANALYSIS: - It is very much clear from the research that most of the respondents are

belong to middle class income. And people from lower level income are investing a small

part of their income in the market.

.

Annual Saving Distribution

Annual Saving Respondents %

Below Rs.50,000 39 39

Rs.50,000 Rs.1,00,000 24 24

Rs.100000 Rs.150000 10 10

Rs.150000- Rs.2,50,000 12 12

Above Rs.2,50,000 15 15

Annual Saving Distribution

Below 50000

39%

Above 250000

15%

150000 - 250000

12%

100000 - 150000

10%

50000 - 100000

Below

5000

1000

1500

Abov

From the above chart it is clear that 39% of the people save below Rs.50000 followed by

24% of the people who save Rs.50000 Rs.100000. 15% of the people save above

Rs.250000.

ANALYSIS: - It is very much clear from the research that most of the respondents

belong to lower level income and some lower middle class people.

34


35/69


Occupation Distribution

Occupation Respondents %

Salaried 60 60

Businessman 26 26

Retired 14 14

Occupation Distribution

Business

26%

Retired

14%

Salaried

60%

S

B

R

From the above Chart it is clear that a majority of the sample who are interested in making

investment are salaried people i.e.60% followed by businessmen i.e. 26%.

ANALYSIS: - It is very much clear from the research that the salaried people are more

ready to take the risk than those who are businessman as the businessmen are always

under the risk of liquidity.

And the retired people dont want to take much risk because their source of income is

very less.

Investment Type Distribution

35


36/69


Investment Option Respondents %

Equity 30 30

Bnds 7 7

Mutual Fund 8 8

Real Estate 15 15

Others 40 40

Investment Type Distribution

Others

40%

Real Estate Mutual Fund

8%

Bonds

7%

Equity

30%

E

B

M

R

O

The above chart explains about the respondents investment in different options, a

majority of the investors invest in others i.e. FD, Insurance, Gold, etc. 30% of the

investors invest in equity and 15% of the investors invest in Real Estate. Very few people

have invested in the mutual fund and bonds.

Inferences: In India, people invest more into FD, Gold, and Insurance as these are more

popular in India and people feel it to be a more safe investment option. The young

generation people want fast money and are ready to take more risk so they invest into

equity.

Investment Distribution Based On Experience

Investment Respondents %

Mutual Fund 26 21

Bank F. D 52 41

Insurance 14 11

Real Estate 34 27

36


37/69


Investment Distribution Based On Experience

Bank F.D.

41%

Insurance

11%

Real Estate

27%

Mutual Fund

21%

M

B

In

R

As we can infer from the above graph that when it comes to safe return most of the

investors believes that Bank F.D. is the most secured investment. But when it is asked to

respondent that if they want safety with maximum return among these four option then,

the opinion of the respondent were deviated.

Inference: as it is very much clear from the above chart that when it comes to safety with

maximum return then also around 41% of the respondents believe that Bank F.D. is the

only option.

Investment Purpose

Investment Purpose Respondents %

Listing Gains 2 2

Long Term Gains 80 80

Short Term Gains 18 18

37


38/69


Investment Purpose

Long Term Gains

Listing Gains

2%Short Term Gains

18%

Listing

Long T

Short

Option On ETF

Option On ETF Respondents %

Yes 38 38

No 20 20

Cant Say 42 42

Opinion On ETF's

Yes

38%

No

20%

Can't Say

42%

An exchange-traded fund (orETF) is an investment vehicle traded onstock exchanges,

much like stocks. An ETF holds assets such as stocks or bonds and trades at

approximately the same price as the net asset value of its underlying assets over the

course of the trading day. Most ETFs track an index, such as the S&P 500 orMSCI

38
http://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stockshttp://en.wikipedia.org/wiki/Stockshttp://en.wikipedia.org/wiki/Net_asset_valuehttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/S%26P_500http://en.wikipedia.org/wiki/MSCI_EAFEhttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stockshttp://en.wikipedia.org/wiki/Net_asset_valuehttp://en.wikipedia.org/wiki/Stock_market_indexhttp://en.wikipedia.org/wiki/S%26P_500http://en.wikipedia.org/wiki/MSCI_EAFE


39/69


EAFE. ETFs may be attractive as investments because of their low costs, tax efficiency,

and stock-like features.

ANALYSIS: As we can see from the above graph that though ETFs has become a very

good investment option now days but still majority of the people are not aware of ETFs.

And around 38% of the respondents said that yes ETFs can be a good tool making

money in market.

And around 20% of the respondents said that ETFs cant be a useful instrument for

making money.

Factor Affecting Investment Decision

Factor Affecting Investment Respondents %

Random Pick 4 4

Friends Advice 21 21

Own Research 40 40

Newspaper 22 22

Broker Advice 13 13

39
http://en.wikipedia.org/wiki/MSCI_EAFEhttp://en.wikipedia.org/wiki/MSCI_EAFE


40/69


Factor Affecting Investment Decision

Random Picks

4%

Friends Advice

21%

Broker Advice

13%

Newspaper/TV

22%

Own Research

Ran

Frie

Ow

Ne

Bro

Sector

Sectors Respondents %

Power 18 10

Capital Goods 8 4

Infrastructure 40 22

Banking 44 25

Real Estate 28 16

Pharmaceutical 10 6

Insurance 6 3

Retail 6 3

FMCG 8 4

Steel 3 2

Oil & Gas 5 3

IT 4 2

40


41/69


Sector

Power

10%Retail

3%

FMCG

4%

Steel

2% IT

2%

Oil & Gas

3%

Insurance

3%

Pharmaceutical6%

Real Estate

16%

Infrastructure

22%

Capital Goods

4%

Pow

Capi

Infra

Ban

Real

Phar

Insu

Reta

FMC

Stee

Oil &

ANALYSIS: As it is very much clear from the above chart and the statistics that most of

the respondents said that the Infrastrusture and the banking sector will give the maximum

return in the upcoming next year. 22% of the respondents selected the banking sector as

the most and 20% of the respondents feels that Infrastructure sector will give the

maximum return.

Since after this slowdown government of india has given some bailout packages to the

economy and out of that sizeable proportion will be given to infrastructure development

segment. Despite the slowdown specially in the rual segment and in semi-urban area

many of new Infrastructure project has started and also the government of india has

alloted 40,000 crores for the Bharat Nirman Yojana.

So the investors are thinking of that Infrastructure sector will lead the market rally in the

future.

Since, all the Infrastructure project are based on power and energy so 9% of the investors

are thinking that power and energy sector will give them maximum return.

And also we have seen that from the jan 2009 to may 2009 both the sector infrastructure

and real estate has given almost 85 and 78 percent return respectively in just period of 5

months.

FMCG sector in india is growing at 16% y-o-y basis. And recession has not affected

much this industry so its keep on growing as its pace. Around 8% of the respondents

feels that FMCG sector can give them maximum return.

41


42/69


5% of the respondents believes that pharmaceutical sector will give them maximum

return in the next year.

Income Vs Saving

Below5

0000

50000-100000

1

00000-150000

15

0000-250000

A

bove250000

Below 150000150000-300000

300000-400000Above 400000

0

1020

30

40

5060

70

80

90

100

Percentage

Annual Saving

Annual Income

Income Vs Saving

Bel

150

300

Abo

Below 150000 100 0 0 0 0

150000-300000 88 9 3 0 0

300000-400000 30 47 15 8 0

Below 5000050000-

100000

100000-

150000

150000-

250000

Above

250000

42


43/69


Age Vs Time Horizon

43


44/69


Below

1Year1-3 Year

3-5 YearAbove 5

Years

Below 30

31-40

41-50

Above 50

0

5

10

15

20

25

30

35

40

45

50

Percentage

Time Of Deposit

Age

Age Vs Time Horizon

Below 30 25 50 25 0

38 38 23 0

29 29 24 19

Below 1Year 1-3 Year 3-5 Year Above 5 Years

44


45/69


Age

Age Respondents %

Strongly Agree 15 15

Agree 25 25

Neither Agree Nor Disagree 8 8

Disagree 32 32

Strongly Disagree 20 20

Age

Strongly Disagree

20%

Disagree

32% Neither Agree Nor

Disagree

Agree25%

Strongly Agree

15%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

From the above chart it is clear that a majority of the investors i.e. 32% believe that age

does not affect the investment decision of the investors and 25% of the investors believe

that age affect the investment decision of the investors.

45


46/69


47/69


48/69


Portfolio Management By

Experts

Respondents %


Agree 10 10


Disagree 40 40


Portfolio management By Experts

Disagree

40%Neither Agree Nor

Disagree

18%

Agree

10%

Strongly Agree

12%Strongly Disagree

20%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

From the above chart it is clear that a majority of the investors i.e.40% of the investors

believe that portfolio management by expert does not affect the investment decision of

the investors. And there are only few investors who believe that portfolio management by

expert affect the investment decision of the investors.

Risk Appetite Of Investors

48


49/69


Risk Appetite Of Investors Respondents %

Strongly Agree 3 3

Agree 4 4


Disagree 68 68


Risk Appetite Of Investors

Disagree

8%

Neither Agree Nor

Disagree

6%

Strongly Disagree

2% Strongly Agree

12%

Agree

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree


are ready to take the risk as they feel that the more risk they will take the more return

they will get.

There are only few investors who believe in making safe investment and are not ready to

take any risk.

49


50/69


Reputation Of Management

Reputation Of Management Respondents %Strongly Agree 10 10

Agree 61 61


Disagree 19 19


50


51/69


Reputation Of Management

Disagree

19%

Strongly Disagree

6%

Neither Agree Nor

Disagree

4%Agree

Strongly Agree

10%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree


Focus on the reputation of the company before making any investment decision. And

there are only few investors for whom the reputation of the company does not affect their

investment decision.

Companys M&A

Companys M&A Respondents %

Strongly Agree 7 7

Agree 10 10


Disagree 52 52


51


52/69


Company's M&A

Strongly Agree

7% Agree

10%

Neither Agree Nor

Disagree

13%

Disagree

Strongly Disagree

18%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree


Does not focus on the companys merger and acquisition before making any investment

decision. And there are only few investors for whom the companys merger and

acquisition affect their investment decision.

Companys Financial Statement

Companys Financial

Statement

Respondents %

Strongly Agree 7 7

Agree 10 10


Disagree 52 52


52


53/69


Company's Financial Statement

Neither Agree Nor

Disagree

1%

Disagree

9%

Strongly Disagree

1%Strongly Agree

25%

Agree

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

The financial statement of a company shows the performance of the company and thus

helps in the investment decision. The performance of the industry affect the investment

of the investors as everyone wants to make secure investment with more return.


Give importance to companys financial investment before making any investment

decision. And there are only few investors for whom the companys financial investment

does not affect their investment decision.

.

Industry Trend

Industry Trend Respondents %

Strongly Agree 2 2

Agree 8 8


Disagree 68 68Strongly Disagree 12 12

53


54/69


Industry Trend

Agree

8%

Strongly Agree

2%

Strongly Disagree

12%

Neither Agree Nor

Disagree

10%

Disagree

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree


Does not give importance the industry trend before making any investment decision. And

there are only few investors for whom the industry trend does not matter.

Competitors

Competitors Respondents %

Strongly Agree 4 4

Agree 13 13


Disagree 58 58


54


55/69


Competitors

Strongly Agree

4% Agree

13%

Strongly Disagree

5%

Disagree

58%

Neither Agree Nor

Disagree

20%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

In the market there are various competitors and they offer different products of different

variety. So the investors opt for those products which give the maximum return. And

there are many investors for whom the company matter. They are loyal to the company.


Does not give importance to the competitors. And there are only few investors for whom

the competitors matter.

Government Decision

Government Decision Respondents %

Strongly Agree 6 6

Agree 71 71


Disagree 4 4Strongly Disagree 10 10

55


56/69


Government Decision

Agree

71%

Disagree4%

Neither Agree Nor

Disagree

9%

Strongly Disagree

10%Strongly Agree

6%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

The government decision affects the investors decision a lot. Due to the fluctuation

in the tax policies by the government there are changes in the % of savings by

individuals, simultaneously giving an impact on their investment decisions.

From above chart it is clear that a majority of investors i.e. 71% focus on the government

policies before making investment decision. There are only few investors who does not

give importance to the government decision.

Tips By Broker

Tips By Broker Respondents %Strongly Agree 1 1

Agree 17 17


Disagree 47 47


56


57/69


Tips By Broker

Agree

17%

Strongly Agree

1%Strongly Disagree

13%

Disagree47%

Neither Agree Nor

Disagree

22%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

From above chart it is clear that a majority of investors i.e. 47% focus on the tips given

by the broker before making investment decision. There are only few investors who

agree that tips given by the broker are fruitful.

Performance Of Share

Performance Of Share Respondents %


Agree 5 5

Neither Agree Nor Disagree 34 34Disagree 46 46


57


58/69


Performance Of Share

Strongly Agree

10%Strongly Disagree

5%Agree

5%

Neither Agree Nor

Disagree

34%

Disagree

46%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

From above chart it is clear that 46% of the investors give importance to the performance

of the share followed by 34% of the investors who neither agree nor disagree that

performance of share affect their investment decisions. There are only few who feel that

performance of share help them in there their investment decision.

Tips From Investment Gurus

Tips From Investment

Gurus

Respondents %


58


59/69


Agree 5 5


Disagree 46 46


Tips From Investment Guru's

Disagree

50%

Neither Agree Nor

Disagree

30%

Agree

8%

Strongly Agree

4%Strongly Disagree

8%

Strongly Agree

Agree

Neither Agree Nor

Disagree

Strongly Disagree

There are many investors who does not go with the investment tips given by the

investment gurus. They themselves keep an eye on what is happening in the market and

accordingly take decision.

From the above chart it is clear that 50% of the investors does not invest based on tips

given by the gurus followed by 30% who neither agree nor disagree with this. Only fewinvestors give importance to the tips given by the investors and go with it.

59


60/69


Chapter 5FINDINGS &SUGGESTIONS

60


61/69


FINDINGS

Before constructing a portfolio, thorough research of investment options are

required.

Allocate assets to obtain the desired portfolio characteristics to suit distinct

investor profile.

Select individual securities and build a portfolio for each of the asset class under

consideration.

Diversify portfolio to lower investment risk.

Investor should track portfolio by following the performance of his selection.

Observe a few Dos and Donts of Investing.

There is no specific investment vision for a customer though he has lifestyle

aspirations

61


62/69


Safety over returns is still practiced where risk-return trade off is not seen and

understood from the right perspective

Investment decisions are made on random basis or on gossip/rumors rather than

taking advice or paying for right advice.

SUGGESTIONS

PORTFOLIO CONSTRUCTION: -

An individual after deciding his financial goals he would understand the terms long-term,

short-term, intermediate goals and then decide on as to how much of money he need to

get to achieve his financial goal. Then the individual should decide upon various avenues

for investment like equities, FDs, metals, post office, speculative and real estate etc.

STEPS INVOLVED IN PORTFOLIO CONSTRUCTION:In today's financial marketplace, a well-maintainedportfolio is vital to any investor's

success. As an individual investor, you need to know how to determine an asset

allocation which best conforms to your personal investment goals and strategies. In other

words, your portfolio should meet your future needs for capital and give you peace of

mind. Investors can construct portfolios aligned to their goals and investment strategies

by following a systematic approach. Here we see some essential steps for taking such an

approach.

Step 1: Determining the Appropriate Asset Allocation

Ascertaining your individual financial situation and investment goals is the first task in

constructing a portfolio. Important items to consider are age, how much time you have to

grow your investments, as well as amount of capital to invest and future capital needs.

62
http://www.investopedia.com/terms/p/portfolio.asphttp://www.investopedia.com/terms/a/assetallocation.asphttp://www.investopedia.com/terms/a/assetallocation.asphttp://www.investopedia.com/terms/p/portfolio.asphttp://www.investopedia.com/terms/a/assetallocation.asphttp://www.investopedia.com/terms/a/assetallocation.asp


63/69


A second factor to take into account is your personality and risk tolerance. The

possibility of greater returns comes at the expense of greater risk of losses (a principle

known as the risk/return tradeoff) - you don't want to eliminate risk so much as optimize

it for your unique condition and style. Generally, the more risk you can bear, the more

aggressive your portfolio will be, devoting a larger portion to equities and less to bonds

and otherfixed-income securities. Conversely, the less risk that's appropriate, the more

conservative your portfolio will be. Here are two examples: one suitable for a

conservative investor and another for the moderately aggressive investor.

The main goal of a conservative portfolio is to protect its value. The allocation shown

above would yield current income from the bonds, and would also provide some long-

term capital growth potential from the investment in high-quality equities.

A moderately aggressive portfolio satisfies an average risk tolerance, attracting those

willing to accept more risk in their portfolio in order to achieve a balance of capital

growth and income.

Step 2: Achieving the portfolio designed in step 1

63
http://www.investopedia.com/terms/r/risktolerance.asphttp://www.investopedia.com/terms/r/riskreturntradeoff.asphttp://www.investopedia.com/terms/a/aggressiveinvestmentstrategy.asphttp://www.investopedia.com/terms/e/equity.asphttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/f/fixed-incomesecurity.asphttp://www.investopedia.com/terms/r/risktolerance.asphttp://www.investopedia.com/terms/r/riskreturntradeoff.asphttp://www.investopedia.com/terms/a/aggressiveinvestmentstrategy.asphttp://www.investopedia.com/terms/e/equity.asphttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/f/fixed-incomesecurity.asp


64/69


Once you've determined the right asset allocation, you simply need to divide your capital

between the appropriate asset classes. On a basic level, this is not difficult: equities are

equities, and bonds are bonds.

But you can further break down the different asset classes into subclasses, which also

have different risks and potential returns. For example, an investor might divide the

equity portion between different sectors and market caps, and between domestic and

foreign stock. The bond portion might be allocated between those that are short term and

long term, government versus corporate debt and so forth.

There are several ways you can go about choosing the assets and securities to fulfill your

asset allocation strategy:

Stock picking- Choose stocks that satisfy the level of risk you want to carry in the

equity portion of your portfolio - sector, market cap and stock type are factors to

consider. Analyze the companies using stock screeners to shortlist potential picks,

than carry out more in-depth analysis on each potential purchase to determine its

opportunities and risks going forward. This is the most work-intensive means of

adding securities to your portfolio, and requires you to regularly monitor price

changes in your holdings and stay current on company and industry news.

Bond picking- When choosing bonds, there are several factors to considerincluding the coupon, maturity, the bond type and rating, as well as the general

interest rate environment.

Mutual funds - Mutual funds are available for a wide range of asset classes and

allow you to hold stocks and bonds that are professionally researched and picked

by fund managers. Of course, fund managers charge a fee for their services,

which will detract from your returns. Index funds are another choice as they tend

to have lower fees since they mirror an established index and are thus passively

managed.

Exchange-traded funds (ETFs) - If you prefer not to invest with mutual funds,

ETFs can be a viable alternative. You can basically think of ETFs as mutual funds

that trade like a stock. ETFs are similar to mutual funds in that they represent a

large basket of stocks - usually grouped by sector, capitalization, country and the

64
http://www.investopedia.com/terms/s/sector.asphttp://www.investopedia.com/terms/m/marketcapitalization.asphttp://www.investopedia.com/terms/g/governmentsecurity.asphttp://www.investopedia.com/terms/c/corporatebond.asphttp://www.investopedia.com/terms/s/stockscreener.asphttp://www.investopedia.com/terms/c/coupon.asphttp://www.investopedia.com/terms/m/maturity.asphttp://www.investopedia.com/terms/b/bondrating.asphttp://www.investopedia.com/terms/i/interestrate.asphttp://www.investopedia.com/terms/m/mutualfund.asphttp://www.investopedia.com/terms/i/indexfund.asphttp://www.investopedia.com/terms/p/passivemanagement.asphttp://www.investopedia.com/terms/p/passivemanagement.asphttp://www.investopedia.com/terms/e/etf.asphttp://www.investopedia.com/terms/s/sector.asphttp://www.investopedia.com/terms/m/marketcapitalization.asphttp://www.investopedia.com/terms/g/governmentsecurity.asphttp://www.investopedia.com/terms/c/corporatebond.asphttp://www.investopedia.com/terms/s/stockscreener.asphttp://www.investopedia.com/terms/c/coupon.asphttp://www.investopedia.com/terms/m/maturity.asphttp://www.investopedia.com/terms/b/bondrating.asphttp://www.investopedia.com/terms/i/interestrate.asphttp://www.investopedia.com/terms/m/mutualfund.asphttp://www.investopedia.com/terms/i/indexfund.asphttp://www.investopedia.com/terms/p/passivemanagement.asphttp://www.investopedia.com/terms/p/passivemanagement.asphttp://www.investopedia.com/terms/e/etf.asp


65/69


like - except they are not actively managed, but instead track a chosen index or

other basket of stocks. Because they are passively managed, ETFs offer cost

savings over mutual funds while providing diversification. ETFs also cover a

wide range of asset classes and can be a useful tool to round out your portfolio.

Step 3: Re-assessing Portfolio Weightings

Once you have an established portfolio, you need to analyze and rebalance it

periodically because market movements may cause your initial weightings to change. To

assess your portfolio's actual asset allocation, quantitatively categorize the investments

and determine their values' proportion to the whole.

The other factors that are likely to change over time are your current financial situation,

future needs and risk tolerance. If these things change, you may need to adjust your

portfolio accordingly. If your risk tolerance has dropped, you may need to reduce the

amount of equities held. Or perhaps you're now ready to take on greater risk and your

asset allocation requires a small proportion of your assets to be held in riskiersmall-cap

stocks.

Essentially, to rebalance, you need to determine which of your positions are over-

weighted and those that are under-weighted. For example, say you are holding 30% of

your current assets in small-cap equities, while your asset allocation suggests you should

only have 15% of your assets kept in that class. You need to determine how much of thisposition you need to reduce and allocate to other classes.

Step 4: Rebalancing Strategically

Once you have determined which securities you need to reduce and by how much, decide

which under-weighted securities you will buy with the proceeds from selling the over-

weighted securities. To choose your securities, use the approaches discussed in step 2.

When selling assets to rebalance your portfolio, take a moment to consider the tax

implications of readjusting your portfolio. Perhaps your investment in growth stocks has

appreciated strongly over the past year, but if you were to sell all of your equity positions

to rebalance your portfolio, you may incur significant capital gains taxes. In this case it

might be more beneficial to simply not contribute any new funds to that asset class in the

future while continuing to contribute to other asset classes. This will reduce your growth

stocks' weighting in your portfolio over time without incurring capital gains taxes.

65
http://www.investopedia.com/terms/a/activemanagement.asphttp://www.investopedia.com/terms/r/rebalancing.asphttp://www.investopedia.com/terms/w/weighted.asphttp://www.investopedia.com/terms/s/small-cap.asphttp://www.investopedia.com/terms/s/small-cap.asphttp://www.investopedia.com/terms/r/rebalancing.asphttp://www.investopedia.com/terms/g/growthstock.asphttp://www.investopedia.com/terms/c/capitalgain.asphttp://www.investopedia.com/terms/a/activemanagement.asphttp://www.investopedia.com/terms/r/rebalancing.asphttp://www.investopedia.com/terms/w/weighted.asphttp://www.investopedia.com/terms/s/small-cap.asphttp://www.investopedia.com/terms/s/small-cap.asphttp://www.investopedia.com/terms/r/rebalancing.asphttp://www.investopedia.com/terms/g/growthstock.asphttp://www.investopedia.com/terms/c/capitalgain.asp


66/69


At the same time, however, always consider the outlook of your securities. If you suspect

that those same over-weighted growth stocks are ominously ready to fall, you may want

to sell in spite of the tax implications. Analyst opinions and research reports can be

useful tools to help gauge the outlook for your holdings. And tax-loss selling is a strategy

you can apply to reduce tax implications.

Rebalancing is the process of buying and selling portions of your portfolio in order to

set the weight of each fund in your overall investment back to its original state.

In case a distortion happens in the markets three times in a year, rebalance your portfolio.

If the markets gain, decrease the exposure to equity by a suitable percentage.

If the markets dip, increase the exposure to equity by a suitable percentage.

Consider you have an investment amount of Rs.100 of which

Equity exposure: 60; Debt exposure: 40

Asset

class

Equity Debt Total

Initial

allocation

60 40 100

When markets gain:

distortion 66

10%

41

2.5%

107

rebalance 61.68

(excess

1.68)

38.32 100

When markets dip:

distortion 54

10%

39

2.5%

93

66


67/69


rebalance 58.06 41.93 100

Rebalancing portfolio will not only help to maintain original asset-allocation strategy but

also implement any change in investing style. Essentially, rebalancing will help one to

stick to his investing plan regardless of what the market does.

Financial Discipline: -

An individual should have a proper financial discipline. The following points would

explain what financial discipline is all about: -

Identify the difference between your earning potential minus your expenditure

Identify your short / medium / long / very long term goals

Identify your dreams with those goals

Look at Inflation as the biggest threat

Set achievable goals

Allocate funds on low risk / high risk basis

Increase quantum towards high risk when you are young and keep decreasing as

you age

Asset Allocation Process: -

It is important to differentiate assets or investment instruments based on its risk,

safety, liquidity, returns and the tenure that one is willing to hold

Further these instruments should be segregated based on the horizon of

investments (holding capacity or holding period) short/medium/long or ultra

long term.

Each investment class has its own restrictions in terms of safety, liquidity, returns

and tenure; low risk and high safety always ends up offering lower returns and

high degree of risk & safety gives way to higher rate of returns which is evident

in the tools we choose.

Allocation Methods: -

The allocation of his investment into various asset classes also depends on his age as

when he is young he can take a lot of risk compared to when he is growing old. When his

67


68/69


age is between 25-28 years he should invest more in equities and aggressive SIPs i.e.

(Systematic Investment Plan) etc. When his age is between 28-30 years he should start

off with real estate and should have more than 75% of his investment in equities. When

his age is between 30-35 years then he should have 60-65% of his investments in equities

and should continue with the SIPs. When his age is between 35-45 years he should have

50% in equities, insurance premiums etc.

CONCLUSION

CONCLUSION:-

Its indeed a great pleasure to learn the micro and macro prospective of profit

maximization & wealth preservation. Though a layman who wishes to multiplied his

investment with a short span of time but is unaware of the macro factors like inflation,

interest rate, govt. policies, industry competitiveness, sector performance and the like.

On the micro front, by means of carefully keeping track of corporate quarter results,business plan, future prospective, growth, return on investment, management

effectiveness etc

By means of this project, I understand the various investment avenues with respect to

safety, liquidity and return. It definitely adds a new dimension of analyzing investment

option and tailoring according to the need of investor.

In India, only 3% of entire population invests in equities which are due lack of

awareness, low risk appetite, fear of losing money, unable to attend stock market and

economic factor as a whole etc.

68


69/69


Once an investor makes an attempt to learn the basic fundamental of the investment, he

will minimize his risk and will be able to meet his financial requirement as and when

arrive.

Download - Sneha Final Project Report

Top Related