Analysis of Mutual Fund & Portfolio Management in Mutual Fund for Motilal Oswal Securities by Kalpa Kabra

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A PROJECT REPORT ON “Analysis of Mutual Fund & Portfolio Management in Mutual Fund” For Motilal Oswal Securities Ltd (ANP Investments)

By Kalpa Kabra Under the guidance of Dr. Jyoti Mishra

Submitted To “Vishwakarma Institute Of Management” In partial fulfillment of the requirement for the award of the degree of Master in Business Management (Autonomous) Through Vishwakarma Institute Of Management Pune-48

Table Of Contents

1. Acknowledgement 2. List of Tables and Illustrations 3. Abbreviations 4. Executive summary 5. Introduction Company profile 6. Industry Profile 7. On The Job Training 8. Description of project Calculation of NAV Advantages of Mutual funds Disadvantages of Mutual funds Tool showing funds characteristics Objectives of project Limitation of project Methodology 9. Managing Portfolio Asset allocation

Achieving optimal Asset allocation Maximizing return while minimizing risk Figures showing portfolio models o Conservative portfolio o Moderately portfolio o Moderately aggressive portfolio o Very aggressive portfolio 10. Maintaining your portfolio 11. Guide to portfolio construction 12.Mutual fund –Cost (Look on IT) 13.Summary A roadmap for your investments Analysis of data Conclusion 14. Glossary 15.Bibliography


A project will be never successful with out the assistance and guidance from appropriate persons. So now it is the right time to express me sincere gratitude to all those who are helping me to complete this project.

I express my sincere thanks to Mr. Ashish Pimpalwar giving me an opportunity to do project in Motilal Oswal Securities Ltd.(ANP Investments).

I express my sincere thanks to my company guide Mrs. Sonali Madhamshettiwar, head Distribution department for her guidance.

I also thanks to Kiran Chamle, Govind Chamle, and Amolika Jaju for their valuable guidance.

I whole heartedly thanks to my faculty guide Dr. Jyoti Mishra, who is giving me valuable suggestions for completing my project in right way.


1. Calculation of NAV (Net Asset Value). 2. Tool showing funds characteristic. 3. Figure showing how to Maximizing returns while minimizing risk. 4. Figures showing portfolio models Conservative portfolio Moderately portfolio Moderately aggressive portfolio Very aggressive portfolio


1) MF – Mutual Fund 2) AMC – Asset Management Company 3) SEBI – Securities Exchange Board Of India 4) DP – Depository Participants 5) PPF – Public Provident Fund 6) NAV – Net Asset Value 7) HNIs – High Net Worth Individuals 8) CRM – Customer Relationship Management 9) AUM – Asset Under Management


Right from its existence, Banks, whether nationalize or corporate, always dominated others, in case of public investments or retail investments. But in past few years due to various reasons like continuously falling of interest rates, various scams etc. investors will have to look for various other investments avenues that will give them better returns with minimization of risks. Here Mutual Funds Industry has very important role to play in providing alternate investment avenue to entire gamut of investors in scientific and professional manner.

Indian Mutual Fund Industry has been definitely maturing over the period. In four decades of its existence in India Mutual Funds have gone through various structural changes and gained prominent position in Financial Industry. Because of easy of investments, professional management and diversification more and more investors are gaining confidence in Mutual Funds. Even government policies like abolishment of long term capital benefit taxes added advantage to growth of Mutual Funds. This is all the way is leading to pool of more and more money from retail investors into the Mutual Funds.

So I carried out project in Mutual Funds and its Portfolio Management for the period of two months starting from 1 June 2007 to 31 July 2007 to understand Mutual Funds, Mutual Fund Industry, analyze the trend in Mutual Funds, what has been the performance so far and mapping various methods of Client prospecting and servicing, what are the factors that attracts the investors to invest in Mutual Funds over other investment avenues.
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The project study focused on increasing brand awareness at retail level clients and various

activities that results in brand awareness among the same. This project also consists of generating and getting clients, generating database and after sales services to retain client and make them happy investor.

While analyzing trend, I tried to map how Asset Under Management (AUM) varied over the period with BSE-Sensex to facilitate feature projections. It has been done separately for Equity Schemes, Income Schemes, Balanced Schemes and Liquid Schemes.

COMPANY PROFILE MOTILAL OSWAL SECURITIES LIMITED is a leading full service securities firm providing the entire gamut of financial services. Mr. Motilal Oswal and Mr. Raamdeo Agarawal lay the foundation of a great partnership by starting a sub-broking firm. The venture stands out from the rest due to their approach of Research-based broking even when sub-brokers. At MOTILAL OSWAL SECURITIES LIMITED Advisors with unique approach to examining and solving your long-term requirement, the strength of experience and depth of technical awareness that you can call upon is all embracing. MOSL assists companies in realizing tangible improvements in various facets of their businesses by providing a range of corporate advisory services that includes the entire gamut from financial restructuring and business turnover strategies. Motilal Oswal Financial Services is a well diversified financial services group having businesses in securities, commodities, investment banking and venture capital. With 1160 Business locations and more than 2,00,000 investors in over 360 cities, Motilal Oswal is well suited to handle all your wealth creation and wealth management needs. And the company has many francshisee all over and one of is our franchise that is ANP INVESTMENTS. The MOSL in the last year placed 9.48% with two leading private equity investors - New Vernon Private Equity Limited and Bessemer Venture Partners at post money company valuation of Rs. 1345 crore. (Rs. 13.45 billion). ANP INVESTMENTS is one of India's mutual fund distribution house. There success lies in their philosophy of providing consistently superior, independent and unbiased advice to clients

backed by in-depth research. ANP INVESTMENTS firmly believes in the importance of selecting appropriate asset allocations based on the client's risk profile. ANP INVESTMENTS have a dedicated mutual fund research cell for mutual funds that consistently churns out superior investment ideas, picking best performing funds across asset classes and providing insights into performances of select funds. Using various information sources like Customer, Employees, Books, Internet, and News etc can do the project. This Project “Study of Mutual Funds Market in India” gives us idea about the basics of Mutual Funds, Their Benefits, Types, Tax system, Risk Profile, Strategies for choosing the best funds, Awareness among the people regarding Mutual Funds etc. which can be helpful for the company to make people understand about Mutual Funds.

Core Purpose of the company To be a well respected and preferred global financial services organization enabling wealth creation for all our customers

Core Value of the Company Integrity : A company honoring commitment with highest ethical and business practices. Team Work : Attaining goals collectively and collaboratively. Passion & Attitude : High energy and self motivated with a “Do It” attitude and entrepreneurial spirit. Excellence in Execution : Time bound results within the framework of the company’s value system.

The firm's philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions.

Services offered in retail sector: 1. IPO’s Distribution 2. Mutual Fund Distribution 3. Equity Trading 4. Derivative Trading 5. Research 6 Commodity Trading 7. Insurance ( Life & General) 8. Online Broking 9. Portfolio Management System (PMS)


Mutual Funds in India (1964-2000) The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it.

UTI commenced its operations from July 1964. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that depressed the financial market, entrepreneurs were hesitant to enter capital market. The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small."

His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors.

UTI commenced its operations from July 1964 "with a view to encouraging savings and investment and participation in the income, profits and gains accruing to the Corporation from

the acquisition, holding, management and disposal of securities." Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust.

One thing is certain – the fund industry is here to stay. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs1130bn.

The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debut in 1993-94, the stock market was booming. The openings up of the asset management business to private sector in 1993 saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with the host of domestic players join the party. But for the equity funds, the period of 1994-96 was one of the worst in the history of Indian Mutual Funds.

1999-2000 Year of the funds Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw immense future potential and developments in this sector. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF’s. This time around all the participants are involved in the revival of the funds ----- the AMC’s, the unit holders, the other related parties. However the sole factor that gave lifr to the revival of the funds

was the Union Budget. The budget brought about a large number of changes in one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided later. It provided centre stage to the mutual funds, made them more attractive and provides acceptability among the investors. The Union Budget exempted mutual fund dividend given out by equityoriented schemes from tax, both at the hands of the investor as well as the mutual fund. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business, which would mean to increase asset base, and to get asset base, and investor base they had to be fully armed with a whole lot of schemes for every investor .So new schemes for new IPO’s were inevitable. The quest to attract investors extended beyond just new schemes. The funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI)

One can say that the industry is moving from infancy to adolescence, the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions.

Future Scenario The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with stronger players in

three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come.

But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

On The Job Training

Purpose-: OJT is basically to give intern exposure to the outside world and it help to teach him/her the real world work by giving him practical knowledge. Through OJT I learn that the theory we have learned is difficult to implement in practical work. And we have to apply them in a very different way.

As I am learning about mutual funds, initial public offers etc. Before this I was just aware of the theory part of it i.e. definition of mutual funds, its requirement, why a company need additional capital etc. But after working here I came to know that it is very important to learn the practical procedure of handling the mutual funds and IPO’s because the main part is the dealing with the customers, convincing them to buy our product and make him to invest with us and providing him best service.

I have started my OJT from the very first day. And the day to day work that I am suppose to do is my OJT and it is not fixed what I have to do and before start working I have to learn the work which is assigned to me. My company guide has given me the work related to IPO’s (Initial Public Offer). Then I got work related to mutual funds. The details of the following are explained here-:

So the objectives of my OJT are as follows-

Basics of IPO’s How a company comes up with new public offer? Requirement of additional capital for a company? Decision about fixing price band it includes 2 types fixed price or book building. Online/Offline Bidding of Application forms-: Bidding of forms.

I have to maintain the database of applicants of IPO’s to report to the head office about the applications collected. Customer Service-: o When a customer is asking some query I have to answer him but if I am not sure I have to ask to my senior and solve his problem. o By interacting customer we can study the main problems faced by them, as they are not expert of the financial products so they need clear explanation.

Telemarketing -: Our primary objective is to get an appointment. o Don’t sale over phone, just make the call and the sale will follow. o Determine the objection accurately before you start overcoming it. o How to talk to a prospective customer who can become our customer.

Attracting customers in this field is easy, if the person is ready to invest. He doesn’t have knowledge about financial products so we have convinced him for the same. About Mutual Funds-: o History o Types of mutual funds scheme By structure By investment objectives By various options

I got training for the software INVESTWELL. This is for maintaining the data of mutual funds and this software provides the facility to make clients portfolio in various types so that it become easy for us to give service to our customers. I got training for depository department also where I learnt how a DP works, how to register new client which is under compliance department then how to punch transaction slips how to makes daily reports to send HO and how to dematerialized the physical shares etc. A Depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP), who as an agent of the depository, offers depository services to investors. According to SEBI guidelines, financial institutions, banks, custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a demat account through any DP for dematerialization of his holdings and transferring securities. I got training to understand the basics of equity market.

Targets Understanding & Executing the back office work. Learning about capital markets, Share trading, IPO’s, Mutual Funds & other concepts etc. Generation of leads. Handling customer’s queries if any. Operating the mutual funds software to work on it. Updating database for IPO’s and mutual fund in software. Understanding the work done in DP department. Strategy Employed to achieve the targets-: By practically handling the work. Asking to colleagues, guides & browsing net for understanding concepts of Capital market, Share Trading, Mutual Funds & IPO’s etc. By training program arranged by the company many thing got clear. By asking queries to the company guide and others. Assisting the concerned person doing IPO’s and Mutual funds.


Investments: Various Options Available in Market 1. Investment: The money you earn is partly spent and the rest saved for meeting future expenses. Instead of keeping the savings idle you may like to use savings in order to get return on it in the future. This is called Investment.

2.Why should one invest? One needs to invest to: Earn return on your idle resources Generate a specified sum of money for a specific goal in life Make a provision for an uncertain future

One of the important reasons why one needs to invest wisely is to meet the cost of Inflation. Inflation is the rate at which the cost of living increases. The cost of living is simply what it costs to buy the goods and services you need to live. Inflation causes money to lose value because it will not buy the same amount of a good or a service in the future as it does now or did in the past.

For example, if there was a 6% inflation rate for the next 20 years, a Rs. 100 Purchase today would cost Rs. 321 in 20 years. This is why it is important to Consider inflation as a factor in any long-term investment strategy. Remember to look at an investment's 'real' rate of return, which is the return after inflation. The aim of investments

should be to provide a return above the inflation rate to ensure that the investment does not decrease in value.

3. Various options available for investment: I. Physical Assets: Real Estate Real Estate investment is also on of the good investment option available. Real Estate investment means investments in the Land, Buildings, Flats, and Houses etc. Now a day the growth in the prices of real estate is very rapid. That’s why investor gets good returns in this investment. But the growth of real estate investment is in the long term only. In short term there is no growth in this. It requires very huge investment. Only big investors can invest in this. Normal small investor cannot invest in this. This is not in his reach. In Real Estate investment you will not have the liquidity. Buying & selling of property is not so easy at lest in India. The Procedures & Documentation of ‘Transfer of Property’ is very lengthy. It takes time & money. For transfer you have pay taxes & duties & some charges. Commodity: Commodities market, contrary to the beliefs of many people, has been in existence in India through the ages. However the recent attempt by the Government to permit Multi-commodity National levels exchanges has indeed given it, a shot in the arm. As a result two exchanges Multi Commodity Exchange (MCX) and National Commodity and derivatives Exchange (NCDEX) have come into being. These exchanges, by virtue of their high profile promoters and stakeholders, bundle in themselves, online trading facilities, robust surveillance measures and a hassle-free settlement system. The futures contracts available on a wide spectrum of

commodities like Gold, Silver, Cotton, Steel, Soya oil, Soya beans, Wheat, Sugar, Channa etc., provide excellent opportunities for hedging the risks of the farmers, Importers, exporters, traders and large-scale consumers. They also make open an avenue for quality investments in precious metals. The commodities market, as the movements of the stock market or debt market do not affect it provides tremendous opportunities for better diversification of risk. Realizing this fact, even mutual funds are contemplating of entering into this market. II Financial Assets: Investment in Capital Market: Capital Market is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc. Further, it performs an important role of enabling corporate, entrepreneurs to raise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporate) is most efficiently achieved Through the securities market. Stated formally, securities markets provide channels for reallocation of savings to investments and entrepreneurship. Savings are linked to investments by a variety of intermediaries, through a range of financial products, Called ‘Securities’.

Small Saving Instruments: It is again classified in to short term and long term saving instruments. Short term saving instruments: Broadly speaking, savings bank account, money market/liquid funds and fixed deposits with banks may be considered as short-term financial investment options:

Savings Bank Account: It is often the first banking product people use, which offers low interest (4%-5% p.a.), making them only marginally better than fixed deposits.

Money Market or Liquid Funds: These funds are a specialized form of mutual funds that invest in extremely short-term fixed income instruments and thereby provide easy liquidity. Unlike most mutual funds, money market funds are primarily oriented towards protecting your capital and then, aim to maximise returns. Money market funds usually yield better returns than savings accounts, but lower than bank fixed deposits.

Fixed Deposits with Banks: These are also referred to as term deposits and minimum investment period for bank FDs is 30 days. Fixed. Deposits with banks are for investors with low risk appetite, and may be considered for 6-12 months investment period as normally interest on less than 6 months bank FDs is likely to be lower than money market fund returns.

Long Term Financial options available for investment: Post Office Savings Schemes, Public Provident Fund, Company Fixed Deposits, Bonds and Debentures, Mutual Funds etc.

Public Provident Fund: A long-term savings instrument with a maturity of 15 years and interest payable at 8% per annum compounded annually. A PPF account can be opened through a nationalized bank at anytime during the year and is open all through the year for depositing money. Tax benefits can

be availed for the amount invested and interest accrued is tax-free. A withdrawal is permissible every year from the seventh. Financial year of the date of opening of the account and the amount of withdrawal will be limited to 50% of the balance at credit at the end of the 4th year immediately preceding the year in which the amount is withdrawn or at the end of the preceding year whichever is lower the amount of loan if any.

Bonds: It is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with a fixed rate of interest on a specified date, called the Maturity Date.

Mutual Funds: These are funds operated by an investment company, which raises money from the public and invests in a group of assets (shares, debentures etc.), in accordance with a stated set of objectives. It is a substitute for those who are unable to invest directly in equities or debt because of resource, time or knowledge constraints. Benefits include professional money management, buying in small amounts and diversification. Mutual fund units are issued and redeemed by the Fund Management Company based on the fund's net Asset value (NAV), which is determined at the end of each trading session.

Calculation of NAV The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below.


Asset value is equal to Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid Details on the above items For liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable

benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation. Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued". Expenses including management fees, custody charges etc. are calculated on a daily basis. Mutual Funds are usually long term investment vehicle though there some categories of mutual funds, such as money market mutual funds which are short term instruments. A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.

Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

You can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit.

Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Motilal Oswal Securities Ltd. (ANP Investments) is one of India's top mutual fund distribution houses. There success lies in their philosophy of providing consistently superior, independent

and unbiased advice to clients backed by in-depth research. MOSL firmly believes in the importance of selecting appropriate asset allocations based on the client's risk profile. MOSL have a dedicated mutual fund research cell for mutual funds that consistently churns out superior investment ideas, picking best performing funds across asset classes and providing insights into performances of select funds. Using various information sources like Customer, Employees, Books, Internet, and News etc can do the project. This Project “Study of Mutual Funds Market in India” gives us idea about the basics of Mutual Funds, Their Benefits, Types, Tax system, Risk Profile, Strategies for choosing the best funds, Awareness among the people regarding Mutual Funds etc. which can be helpful for the company to make people understand about Mutual Funds & to prepare a diversified profitable portfolio of the customers.

Professional Management - The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.

Diversification - By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money.

Economies of Scale - Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than you as an individual would pay.

Liquidity - Just like an individual stock, a mutual fund allows you to request that your shares be converted into cash at any time.

Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of mutual funds, and the minimum investment is small. Most companies also have automatic purchase plans whereby as little as $100 can be invested on a monthly basis.


Professional Management- Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject. Dilution - It's possible to have too much diversification because funds have smallholdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

Taxes - When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Mutual Funds: Different Types of Funds

No matter what type of investor you are there is bound to be a mutual fund that fits your style. According to the last count there are over 10,000 mutual funds in North America! That means there are more mutual funds than stocks. It's important to understand that each mutual fund has different risks and rewards. In general, the higher the potential return, the higher the risk of loss. Although some funds are less risky than others, all funds have some level of risk--it's never possible to diversify away all risk. This is a fact for all investments.

Each fund has a predetermined investment objective that tailors the fund's assets, regions of investments, and investment strategies. At the fundamental level, there are three varieties of mutual funds: 1) Equity funds (stocks) 2) Fixed-income funds (bonds) 3) Money market funds All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds.

Let's go over the many different flavors of funds. We'll start with the safest and then work through to the more risky.

Money Market Funds The money market consists of short-term debt instruments, mostly T-bills. This is a safe place to park your money. You won't get great returns, but you won't have to worry about losing your principal. A typical return is twice the amount you would earn in a regular checking/savings account and a little less than the average certificate of deposit (CD). We've got a whole tutorial on the money market if you'd like to learn more about it.

Bond/Income Funds Income funds are named appropriately: their purpose is to provide current income on a steady basis. When referring to mutual funds, the terms "fixed-income," "bond," and "income" are synonymous. These terms denote funds that invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors. As such, the audience for these funds consists of conservative investors and retirees.

Bond funds are likely to pay higher returns than certificates of deposit and money market investments, but bond funds aren't without risk. Because there are many different types of bonds, bond funds can vary dramatically depending on where they invest. For example, a fund specializing in high-yield junk bonds is much more risky than a fund that invests in government securities; also, nearly all bond funds are subject to interest rate risk, which means that if rates go up the value of the fund goes down.

Balanced Funds The objective of these funds is to provide a "balanced" mixture of safety, income, and capital appreciation. The strategy of balanced funds is to invest in a combination of fixed-income and equities. A typical balanced fund might have a weighting of 60% equity and 40% fixedincome. The weighting might also be restricted to a specified maximum or minimum for each asset class. A similar type of fund is known as an asset allocation fund. Objectives are similar to those of a balanced fund, but these kinds of funds typically do not have to hold a specified percentage of any asset class. The portfolio manager is therefore given freedom to switch the ratio of asset classes as the economy moves through the business cycle.

Equity Funds Funds that invest in stock represent the largest category of mutual funds. Generally, the investment objective of this class of funds is long-term capital growth with some income. There are, however, many different types of equity funds because there are many different types of equities. A great way to understand the universe of equity funds is to use a style box, an example of which is below.

A tool showing a fund's characteristics such as the investment philosophy, underlying investments and risks. This helps investors and investment companies easily understand and convey information about the fund.

The above mutual fund style box illustrates that the mutual fund is a large-cap, valueoriented fund. This conveys to investors that the fund is investing in wellestablished companies that are under- or fairly valued. The company will not be invested in small-cap, mid-cap or growth stocks.

Objectives of Project-: To make people aware of Anand Rathi. To understand ways of systematic financial planning . To compare various financial products. To study of basics of Mutual Fund market & overall industry.

To analyze various mutual funds schemes. To enumerate risks associated with mutual fund scheme. To analyze mutual fund investment by comparing it’s various investment avenues. Limitations of Project-:

Project is restricted to mutual funds and Portfolio Management Area of project is very wide so it’s difficult to cover each and every point. Methodology-: I am collecting data in 2 ways through Primary data collection Secondary data collection Under primary data collection I will collect data by observing the people in the company who come to give training, or the concern person doing work for mutual funds or in IPO’s department.

For my study of portfolio management I have asked questions to clients and collected relevant data.

Visiting various sites of mutual funds and companies’ sites by reading leaflets, broachers that already exist in company, collects secondary data.


ASSET ALLOCATION The process of dividing a portfolio among major asset categories such as bonds, stocks or cash. The purpose of asset allocation is to reduce risk by diversifying the portfolio. The ideal asset allocation differs based on the risk tolerance of the investor. For example, a young executive might have an asset allocation of 80% equity, 20% fixed income, while a retiree would be more likely to have 80% in fixed income and 20% equities.

What Is Asset Allocation? Asset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing assets among major categories such as cash, bonds, stocks, real estate and derivatives. Each asset class has different levels of return and risk, so each will behave differently over time. For instance, while one asset category increases in value, another may be decreasing or not increasing as much. Some critics see this balance as a settlement for mediocrity, but for most investors it's the best protection against major loss should things ever go amiss in one investment class or sub-class.

The consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. In other words, your selection of stocks or bonds is secondary to the way you allocate your assets to high and low-risk stocks, to short and longterm bonds, and to cash on the sidelines. We must emphasize that there is no simple formula that can find the right asset allocation for every individual

The important task of appropriately allocating your available investment funds among different assets classes can seem daunting, with so many securities to choose from. Essentially, asset allocation is an organized and effective method of diversification. To help determine which securities, asset classes and subclasses are optimal for your portfolio; let's define some briefly: Large-cap stock - These are shares issued by large companies with a market capitalization generally greater than $10 billion. Mid-cap stock - These are issued by mid-sized companies with a market cap generally between $2 billion and $10 billion. Small-cap stocks - These represent smaller-sized companies with a market cap of less than $2 billion. These types of equities tend to have the highest risk due to lower liquidity.

International securities - These types of assets are issued by foreign companies and listed on a foreign exchange. International securities allow an investor to diversify outside of his or her country, but they also have exposure to country risk - the risk that a country will not be able to honor its financial commitments. Emerging markets - This category represents securities from the financial markets of a developing country. Although investments in emerging markets offer a higher potential return, there is also higher risk, often due to political instability, country risk and lower liquidity. The fixed-income asset class comprises debt securities that pay the holder a set amount of interest, periodically or at maturity, as well as the return of principal when the security matures. These securities tend to have lower volatility than equities, and have lower risk because of the steady income they provide. Note that though the issuer promises payment of income, there is a risk of default. Fixed-income securities include corporate and government bonds. Money market - Money market securities are debt securities that are extremely liquid investments with maturities of less than one year. Treasury bills make up the majority of these types of securities. Real-estate investment trusts (REITs) - REITs trade similarly to equities, except the underlying asset is a share of a pool of mortgages or properties, rather than ownership of a company MAXIMIZING RETURN WHILE MINIMISING RISK The main goal of allocating your assets among various asset classes is to maximize return for your chosen level of risk, or stated another way, to minimize risk given a certain expected level of return. Of course to maximize return and minimize risk,

you need to know the risk-return characteristics of the various asset classes. The following chart compares the risk and potential return of some of the more popular ones:

As each asset class has varying levels of return for a certain risk, your risk tolerance, investment objectives, time horizon and available capital will provide the basis for the asset composition of your portfolio. To make the asset allocation process easier for clients, many investment companies create a series of model portfolios, each comprising different proportions of asset classes. These portfolios of different proportions satisfy a particular level of investor risk tolerance. In general, these model portfolios range from conservative to very aggressive:

Conservative model portfolios generally allocate a large percent of the total portfolio to lower-risk securities such as fixed-income and money market securities.

Our main goal with a conservative portfolio is to protect the principal value of our portfolio. As such, these models are often referred to as "capital preservation portfolios". Even if you are very conservative and prefer to avoid the stock market entirely, some exposure can help offset inflation. You could invest the equity portion in high-quality blue chip companies, or an index fund, since the goal is not to beat the market A moderately conservative portfolio is ideal for those who wish to preserve a large portion of the portfolio’s total value, but is willing to take on a higher amount of risk to get some inflation protection.

A common strategy within this risk level is called "current income". With this strategy, you chose securities that pay a high level of dividends or coupon payments. Moderately aggressive model portfolios are often referred to as "balanced portfolios" since the asset composition is divided almost equally between fixedincome securities and equities in order to provide a balance of growth and income.

Since these moderately aggressive portfolios have a higher level of risk than those conservative portfolios mentioned above, select this strategy only if you have a longer time horizon (generally more than five years), and have a medium level of risk tolerance. Aggressive portfolios mainly consist of equities, so these portfolios' value tends to fluctuate widely. If you have an aggressive portfolio, your main goal is to obtain long-term growth of capital. As such the strategy of an aggressive portfolio is often called a "capital growth" strategy.

To provide some diversification, investors with aggressive portfolios usually add some fixed-income securities. Very aggressive portfolios consist almost entirely of equities. As such, with a very aggressive portfolio, your main goal is aggressive capital growth over a long time horizon.

Since these portfolios carry a considerable amount of risk, the value of the portfolio will vary widely in the short term.

Once you have chosen your portfolio investment strategy, it is important to conduct periodic portfolio reviews, as the value of the various assets within your portfolio will change, affecting the weighting of each asset class. For example, if you start with a moderately conservative portfolio, the value of the equity portion may increase significantly during the year, making your portfolio more like that of an investor practicing a balanced portfolio strategy, which is higher risk! In order to reset your portfolio back to its original state, you need to rebalance your portfolio. Rebalancing is the process of selling portions of your portfolio that have increased significantly, and using those funds to purchase additional units of assets that have declined slightly or increased at a lesser rate. This process is also important if your investment strategy or tolerance for risk has changed.

In today's financial marketplace, a well-maintained portfolio 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 go over Step some 1: essential steps the for taking such an approach. for You




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. A single college graduate just beginning his or her career and a 55-year-old married person expecting to help pay for a child's college education and plans to retire soon will have disparate investment strategies.

A second factor to take into account is your personality and risk tolerance. Are you the kind of person who is willing to risk some money for the possibility of greater returns? Everyone would like to reap high returns year after year, but if you are unable to sleep at night when your investments take a short-term drop, chances are the high returns from those assets are not worth the stress.

As you can see, clarifying your current situation and your future needs for capital, as well as your risk tolerance, together will determine how your investments should be allocated among different asset classes. 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. For example, the young person who won't have to depend on his or her investments for income can afford to take greater risks in the quest for high returns. On the other hand, the person nearing retirement needs to focus on protecting his or her assets and drawing income from these assets in a tax-efficient manner. 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 other fixed-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 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 (remember to analyze the quality and potential of each investment you buy - not all bonds and stocks are the same):

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 consider including 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 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 riskier small-cap stocks. Essentially, to rebalance, you need to determine which of your positions are overweighted 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 this position 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. 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. Remember the Importance of Diversification. Throughout the entire portfolio construction process, it is vital that you remember to maintain your diversification above all else. It is not enough simply to own securities from each asset class; you must also diversify within each class. Ensure that your holdings within a given asset class are spread across an array of subclasses and industry sectors. As we mentioned, investors can achieve excellent diversification by utilizing mutual funds and ETFs. These investment vehicles allow individual investors to obtain the economies of scale that large fund managers enjoy, which the average person would not be able to produce with a small amount of money.

Mutual Funds: Costs (Look On It)
Costs are the biggest problem with mutual funds. These costs eat into your return, and they are the main reason why the majority of funds end up with sub-par performance. What's even more disturbing is the way the fund industry hides costs through a layer of financial complexity and jargon. Some critics of the industry say that mutual fund companies get away with the fees they charge only because the average investor does not understand what he/she is paying for.

Annual Fund Operating Expenses Management Fees — fees that are paid out of fund assets to the fund's investment adviser for investment portfolio management, any other management fees payable to the fund's investment adviser or its affiliates, and administrative fees payable to the investment adviser that are not included in the "Other Expenses" category (discussed below).

Distribution [and/or Service] Fees — fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. "Distribution fees" include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. "Shareholder Service Fees" are fees paid to persons to respond to investor inquiries and

provide investors with information about their investments.

Other Expenses — expenses not included under "Management Fees" or "Distribution or Service (12b-1) Fees," such as any shareholder service expenses that are not already included in the 12b-1 fees, custodial expenses, legal and accounting expenses, transfer agent expenses, and other administrative expenses.

Total Annual Fund Operating Expenses ("Expense Ratio") — the line of the fee table that represents the total of all of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. Looking at the expense ratio can help you make comparisons among funds.

Overall, a well-diversified portfolio is your best bet for consistent long-term growth of your investments and protects your assets from the risks of large declines and structural changes in the economy over time. Monitor the diversification of your portfolio, making adjustments when necessary and you will greatly increase your chances of long-term financial success. Asset allocation can be an active process in varying degrees or strictly passive in nature. Whether an investor chooses a precise asset allocation strategy or a combination of different strategies depends on that investor's goals, age, market expectations and risk tolerance. Keep in mind, however, this study gives only general guidelines on how investors may use asset allocation as a part of their core strategies. Be aware that allocation approaches that involve anticipating and reacting to market movements require a great deal of expertise and talent in using particular tools for timing these movements. Some would say that accurately timing the market is next to impossible, so make sure your strategy isn't too vulnerable to unforeseeable errors. A ROADMAP FOR YOUR INVESTMENTS As per my study I have taken data of various age group people like age group of 20’s ,30’s etc According to the study I have drawn this table which easily show the content of the study and gives the idea that which type of portfolio suited to which age group and how we can make different asset allocation groups suited to various age group peoples.

Lets take a look on this STAGE I-Young adult II-Young family III-Mature family IV-Empty nesters V-Retired AGE 20’s 30’s 40’s CIRCUMSTANCES INVESTMENT STRATEGY Has no dependants, low Pursue growth aggressively investible surplus as risk taking ability is high at this stage Married, with young children; Continue aggressive wealth starts investing in earnest creation Higher education of children Start lowering risk in approaching; income peaking investment portfolio by moving funds to safer instruments Children independent; Divert new surpluses to surpluses peak; preparing for building retirement corpus; liquidation keep reducing portfolio risk Creating regular cash flows Create adequate cash flows from safe investments. and beating inflation and priority

50’s 60+


For stage I-:
Asset can be allocated for this age group in three different ways which is divided in 3 types conservative , moderate, or aggressive Conservative typeEquity Debt/Funds Small savings

Moderate typeAggressive type-

For stage II-:

Conservative typeEquity Debt/Funds Small savings

Moderate typeAggressive type-

For stage III-:
Conservative typeEquity Debt/Funds Small savings

Moderate typeAggressive type-

For stage IV-:
Conservative typeEquity Debt/Funds Small savings

Moderate typeAggressive type-

For stage V-:
Conservative typeEquity Debt/Funds Small savings

Moderate typeAggressive typeGenerally speaking when you are young, you can invest a greater proportion in equities. At that stage financial responsibility are fewer , and you can commit to equities for long periods of time, which help you reap the unmatched returns they promise. Also since you are not relying on this money to meet recurring expenses or approaching financial goal , losing some of it temporarily in the pursuit of higher returns won’t have you reach for the panic button or strain your finances as much as it would in later years. As you grows older, your portfolio should progressively tilt towards debt. At that stage of life, safety of principal becomes more important than growth. Approaching retirement your prime concern should be putting in place an alternative income stream , which is better met by debt than equity. Based on the study I have drawn up indicative asset allocation models to see you through life. These asset break ups are not sacrosanct. Your asset allocation can differ from my study at all stages, depending on your life circumstances, financial needs and investing preferences. For example approaching retirement you find that even after ensuring an alternative income stream you still have some surplus left from which you would like higher returns. If you don’t mind the uncertainty you can stretch your equity allocation suitably.



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