CHP 1: Portfolio Management Service

PORTFOLIO MANAGEMENT SERVICES
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CHP 1 : PORTFOLIO MANAGEMENT SERVICE
1.1 ) Introduction
The first in a new series of articles on portfolio management, this introduction expresses IBMs
viewpoint about the foundations and essentials of portfolio management, and discusses ideas
and assets that support and enable effective portfolio management practices. A good way to
begin understanding what portfolio management is (and is not) may be to define the term
portfolio. In a business context, we can look to the mutual fund industry to explain the terms
origins. Morgan Stanleys Dictionary of Financial Terms offers the following explanation: If
you own more than one security, you have an investment portfolio. You build the portfolio by
buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase
the portfolios value by selecting investments that you believe will go up in price. According
to modern portfolio theory, you can reduce your investment risk by creating a diversified
portfolio that includes enough different types, or classes, of securities so that at least some of
them may produce strong returns in any economic climate. Note that this explanation contains
a number of important ideas:
A portfolio contains many investment vehicles.
Owning a portfolio involves making choices -- that is, deciding what additional stocks, bonds,
or other financial instruments to buy; when to buy; what and when to sell; and so forth. Making
such decisions is a form of management.
The management of a portfolio is goal-driven. For an investment portfolio, the specific goal
is to increase the value.

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Managing a portfolio involves inherent risks. Over time, other industry sectors have adapted
and applied these ideas to other types of "investments," including the following: Application
portfolio management: This refers to the practice of managing an entire group or major subset
of software applications within a portfolio. Organizations regard these applications as
investments because they require development (or acquisition) costs and incur continuing
maintenance costs. Also, organizations must constantly make financial decisions about new
and existing software applications, including whether to invest in modifying them, whether to
buy additional applications, and when to "sell" -- that is, retire -- an obsolete software
application.

1.2 ) Meaning of Portfolio Management
Portfolio is a collection of asset.
The asset may be physical or financial like Shares Bonds, Debentures, and Preference Shares
etc.
The individual investor or a fund manager would not like to put all his money in the shares
of one company, for that would amount to great risk.
Main objective is to maximize portfolio return and at the same time minimizing the portfolio
risk by diversification.
Portfolio management is the management of various financial assets, which comprise the
portfolio.
According to Securities and Exchange Board of India (Portfolio manager) Rules, 1993;
portfolio means the total holding of securities belonging to any person; Designing

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portfolios to suit investor requirement often involves making several projections regarding
the future, based on the current information.
When the actual situation is at variance from the projections portfolio composition needs to
be changed.
One of the key inputs in portfolio building is the risk bearing ability of the investor.
Portfolio management can be having institutional, for example, Unit Trust, Mutual Funds,
Pension Provident and Insurance Funds, Investment Companies and non- Investment
Companies.
Institutional e.g. individual, Hindu undivided families, Non- investment Companys etc.
The large institutional investors avail services of professionals.
A professional, who manages other peoples or institutions investment portfolio with the
object of profitability, growth and risk minimization, is known as a portfolio manager.
The portfolio manager performs the job of security analyst.
In case of medium and large sized organization, job function of portfolio manager and
security analyst are separate.
Portfolios are built to suit the return expectations and the risk appetite of the investor.

1.3 ) Product Portfolio Management
Businesses group major products that they develop and sell into (logical) portfolios, organized
by major line-of-business or business segment. Such portfolios require ongoing management
decisions about what new products to develop (to diversify investments and investment risk)
and what existing products to transform or retire (i.e., spin off or divest). Project or initiative
portfolio management, an initiative, in the simplest sense, is a body of work with:

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A specific (and limited) collection of needed results or work products.
A group of people who are responsible for executing the initiative and use resources, such as
funding.
A defined beginning and end. Managers can group a number of initiatives into a portfolio
that supports a business segment, product, or product line. These efforts are goal-driven; that
is, they support major goals and/or components of the enterprises business strategy. Managers
must continually choose among competing initiatives (i.e., manage the organizations
investments), selecting those that best support and enable diverse business goals (i.e., they
diversify investment risk). They must also manage their investments by providing continuing
oversight and decision-making about which initiatives to undertake, which to continue, and
which to reject or discontinue.

1.4 ) Methodology of Portfolio Management
Portfolio Management is used to select a portfolio of new product development projects to
achieve the following goals:
Maximize the profitability or value of the portfolio
Provide balance
Support the strategy of the enterprise Portfolio Management is the responsibility of the
senior management team of an organization or business unit. This team, which might be
called the Product Committee, meets regularly to manage the product pipeline and make
decisions about the product portfolio. Often, this is the same group that conducts the stage-

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gate reviews in the organization. A logical starting point is to create a product strategy -
markets, customers, products, strategy approach, competitive emphasis, etc.
The second step is to understand the budget or resources available to balance the portfolio
against. Third, each project must be assessed for profitability (rewards), investment
requirements (resources), risks, and other appropriate factors.
The weighting of the goals in making decisions about products varies from company. But
organizations must balance these goals: risk vs. profitability, new products vs.
improvements, strategy fit vs. reward, market vs. product line, long-term vs. short-term.
Several types of techniques have been used to support the portfolio management process:
1. Heuristic models
2. Scoring techniques
3. Visual or mapping techniques
The earliest Portfolio Management techniques optimized projects profitability or financial
returns using heuristic or mathematical models. However, this approach paid little attention to
balance or aligning the portfolio to the organizations strategy. Scoring techniques weight and
score criteria to take into account investment requirements, profitability, risk and strategic
alignment. The shortcoming with this approach can be an overemphasis on financial measures
and an inability to optimize the mix of projects. Mapping techniques use graphical presentation
to visualize a portfolios balance. These are typically presented in the form of a two-
dimensional graph that shows the trade-offs or balance between two factors such as risks vs.
profitability, marketplace fit vs. product line coverage, financial return vs. probability of
success, etc


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CHP 2 : INVESTMENT PORTFOLIO MANAGEMENT
2.1 ) Introduction
Portfolio theory is an investment approach developed by University of Chicago economist
Harry M. Markowitz (1927 - ), who won a Nobel Prize in economics in 1990. Portfolio theory
allows investors to estimate both the expected risks and returns, as measured statistically, for
their investment portfolios. Markowitz described how to combine assets into efficiently
diversified portfolios. It was his position that a portfolios risk could be reduced and the
expected rate of return could be improved if investments having dissimilar price movements
were combined. In other words, Markowitz explained how to best assemble a diversified
portfolio and proved that such a portfolio would likely do well. There are two types of Portfolio
Strategies:
A. Passive Portfolio Strategy a strategy that involves minimal expectation input, and instead
relies on diversification to match the performance of some market index.
B. Active Portfolio Strategy a strategy that uses available information and forecasting
techniques to seek a better performance than a portfolio that is simply diversified broadly.


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2.2 ) Basic Concepts And Components For Portfolio Management
Now that we understand some of the basic dynamics and inherent challenges organizations
face in executing a business strategy via supporting initiatives, lets look at some basic
concepts and components of portfolio management practices.
The Portfolio First
We can now introduce a definition of portfolio that relates more directly to the context of our
preceding discussion. In the IBM view, a portfolio is: One of a number of mechanisms,
constructed to actualize significant elements in the Enterprise Business Strategy. It contains
a selected, approved, and continuously evolving, collection of Initiatives which are aligned
with the organizing element of the Portfolio, and, which contribute to the achievement of
goals or goal components identified in the Enterprise Business Strategy. The basis for
constructing a portfolio should reflect the enterprises particular needs. For example, you
might choose to build a portfolio around initiatives for a specific product, business segment,
or separate business unit within a multinational organization.
The Portfolio Structure
As we noted earlier, a portfolio structure identifies and contains a number of portfolios. This
structure, like the portfolios within it, should align with significant planning and results
boundaries, and with business components. If you have a product-oriented portfolio
structure, for example, then you would have a separate portfolio for each major product or
product group. Each portfolio would contain all the initiatives that help that particular
product or product group contribute to the success of the enterprise business strategy.


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The Portfolio Manager
This is a new role for organizations that embrace a portfolio management approach. A
portfolio manager is responsible for continuing oversight of the contents within a portfolio.
If you have several portfolios within your portfolio structure, then you will likely need a
portfolio manager for each one. The exact range of responsibilities (and authority) will vary
from one organization to another, but the basics are as follows:
One portfolio manager oversees one portfolio.
The portfolio manager provides day-to-day oversight.
The portfolio manager periodically reviews the performance of, and conformance to
expectations for, initiatives within the portfolio.
The portfolio manager ensures that data is collected and analyzed about each of the
initiatives in the portfolio.
The portfolio manager enables periodic decision making about the future direction of
individual initiatives.
Portfolio Reviews and Decision Making
As initiatives are executed, the organization should conduct periodic reviews of actual
(versus planned) performance and conformance to original expectations. Typically,
organization managers specify the frequency and contents for these periodic reviews, and
individual portfolio managers oversee their planning and execution. The reviews should be
multi-dimensional, including both tactical elements (e.g. Adherence to plan, budget, and
resource allocation) and strategic elements (e.g., support for business strategy goals and
delivery of expected organizational benefits).A significant aspect of oversight is setting
multiple decision points for each initiative, so that managers can periodically evaluate data

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and decide whether to continue the work. These continue/change/discontinue" decisions
should be driven by an understanding (developed via the periodic reviews) of a given
initiatives continuing value, expected benefits, and strategic contribution, Making these
decisions at multiple points in the initiatives lifecycle helps to ensure that managers will
continually examine and assess changing internal and external circumstances, needs, and
performance.
Governance
Implementing portfolio management practices in an organization is a transformation effort
that typically involves developing new capabilities to address new work efforts, defining
(and filling) new roles to identify portfolios (collections of work to be done), and delineating
boundaries among work efforts and collections. Implementing portfolio management also
requires creating a structure to provide planning, continuing direction, and oversight and
control for all portfolios and the initiatives they encompass. That is where the notion of
governance comes into play. The IBM view of governance is: An abstract, collective term
that defines and contains a framework for organization, exercise of control and oversight,
and decision-making authority, and within which actions and activities are legitimately and
properly executed; together with the definition of the functions, the roles, and the
responsibilities of those who exercise this oversight and decision-making. Portfolio
management governance involves multiple dimensions, including:
Defining and maintaining an enterprise business strategy.
Defining and maintaining a portfolio structure containing all of the organizations initiatives
(programs, projects, etc.).
Reviewing and approving business cases that propose the creation of new initiatives.

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Providing oversight, control, and decision-making for all ongoing initiatives.
Ownership of portfolios and their contents. Each of these dimensions requires an owner --
either an individual or a collective -- to develop and approve plans, continuously adjust
direction, and exercise control through periodic assessment and review of conformance to
expectations. A good governance structure decomposes both the types of work and the
authority to plan and oversee work. It defines individual and collective roles, and links them
to an authority scheme. Policies that are collectively developed and agreed upon provide a
framework for the exercise of governance. The complexities of governance structures extend
well beyond the scope of this article. Many organizations turn to experts for help in this area
because it is so critical to the success of any business transformation effort that encompasses
portfolio management. For now, suffice it to say that it is worth investing time and effort to
create a sound and flexible governance structure before you attempt to implement portfolio
management practices.
Portfolio management essentials
Every practical discipline is based on a collection of fundamental concepts that people have
identified and proven (and sometimes refined or discarded) through continuous application.
These concepts are useful until they become obsolete, supplanted by newer and more
effective ideas. For example, in Roman times, engineers discovered that if the upstream
supports of a bridge were shaped to offer little resistance to the current of a stream or river,
they would last longer. They applied this principle all across the Roman Empire. Then, in
the middle Ages, engineers discovered that such supports would last even longer if their
downstream side was also shaped to offer little resistance to the current. So that became the
new standard for bridge construction. Portfolio management, like bridge-building, is a

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discipline, and a number of authors and practitioners have documented fundamental ideas
about its exercise. Recently, based on our experiences with clients who have implemented
portfolio management practices and on our research into the discipline, we have started to
shape an IBM view of fundamental ideas around portfolio management. We are beginning
to express this view as a collection of "essentials" that are, in turn, grouped around a small
collection of portfolio management themes. For example, one of these themes is initiative
value contribution. It suggests that the value of an initiative (i.e., a program or project) should
be estimated and approved in order to start work, and then assessed periodically on the basis
of the initiatives contribution to the goals and goal components in the enterprise business
strategy. These assessments determine (in part) whether the initiative warrants continued
support.
2.3 ) Objectives of Portfolio Management
The basic objective of Portfolio Management is to maximize yield and minimize risk. The
other objectives are as follows:
a) Stability of Income: An investor considers stability of income from his investment. He also
considers the stability of purchasing power of income.
b) Capital Growth: Capital appreciation has become an important investment principle.
Investors seek growth stocks which provide a very large capital appreciation by way of rights,
bonus and appreciation in the market price of a share.
c) Liquidity: An investment is a liquid asset. It can be converted into cash with the help of a
stock exchange. Investment should be liquid as well as marketable. The portfolio should
contain a planned proportion of high-grade and readily salable investment.

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d) Safety: safety means protection for investment against loss under reasonably variations. In
order to provide safety, a careful review of economic and industry trends is necessary. In other
words, errors in portfolio are unavoidable and it requires extensive diversification.
e) Tax Incentives: Investors try to minimize their tax liabilities from the investments. The
portfolio manager has to keep a list of such investment avenues along with the return risk,
profile, tax implications, yields and other returns.
There are three goals of portfolio management:
1. Maximize the value of the portfolio 2. Seek balance in the portfolio 3. Keep portfolio
projects strategically aligned
2.4 ) Functions of Portfolio Management
The basic purpose of portfolio management is to maximize yield and minimize risk. Every
investor is risk averse. In order to diversify the risk by investing into various securities
following functions are required to be performed. The functions undertaken by the portfolio
management are as follows:
1. To frame the investment strategy and select an investment mix to achieve the desired
investment objective;
2. To provide a balanced portfolio which not only can hedge against the inflation but can also
optimize returns with the associated degree of risk;
3. To make timely buying and selling of securities;
4. To maximize the after-tax return by investing in various taxes saving investment
instruments.

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CHP 3 : STEPS IN PORTFOLIO MANAGEMENT
Performance Portfolio Evaluation Revision Portfolio Execution STEPS Selection of Asset Mix
Identification Portfolio of Strategy Objectives
3.1 ) Identification of The Objectives
The starting point in this process is to determine the characteristics of the various
investments and then matching them with the individuals need and preferences.
All the personal investing is designed in order to achieve certain objectives.
These objectives may be tangible such as buying a car, house etc. and intangible objectives
such as social status, security etc.
Similarly, these objectives may be classified as financial or personal objectives.
Financial objectives are safety, profitability and liquidity.
Personal or individual objectives may be related to personal characteristics of individuals
such as family commitments, status, depends, educational requirements, income,
consumption and provision for retirement etc.
3.2 ) Formulation of Portfolio Strategy
The aspect of Portfolio Management is the most important element of proper portfolio
investment and speculation.
While planning, a careful review should be conducted about the financial situation and
current capital market conditions.
This will suggest a set of investment and speculation policies to be followed.
The statement of investment policies includes the portfolio objectives, strategies and
constraints.

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Portfolio strategy means plan or policy to be followed while investing in different types of
assets.
There are different investment strategies.
They require changes as time passes, investors wealth changes, security price change,
investors knowledge expands.
Therefore, the optional strategic asset allocation also changes.
The strategic asset allocation policy would call for broad diversification through an indexed
holding of virtually all securities in the asset class.
3.3 ) Selection of Asset Mix
The most important decision in portfolio management is selection of asset mix.
It means spreading out portfolio investment into different asset classes like bonds, stocks,
mutual funds etc.
In other words selection of asset mix means investing in different kinds of assets and
reduces risk and volatility and maximizes returns in investment portfolio.
Selection of asset mix refers to the percentage to the invested in various security classes.
The security classes are simply the type of securities as under: money market instrument
fixed income security equity shares real estate investment international securities
Once the objective of the portfolio is determined the securities to be included in the
portfolio must be selected.
Normally the portfolio is selected from a list of high-quality bonds that the portfolio
manager has at hand.
The portfolio manager has to decide the goals before selecting the common stock.

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The goal may be to achieve pure growth, growth with some income or income only. Once
the goal has been selected, the portfolio manager can select the common stocks.
3.4 ) Portfolio Execution
The process of portfolio management involves a logical set of steps common to any
decision, plan, implementation and monitor.
Applying this process to actual portfolios can be complex.
Therefore, in the execution stage, three decisions need to be made, if the percentage
holdings of various asset classes are currently different from desired holdings.
The portfolio than, should be rebalanced. If the statement of investment policy requires
pure investment strategy, this is only thing, which is done in the execution stage.
However, many portfolio managers engage in the speculative transactions in the belief that
such transactions will generate excess risk-adjusted returns.
Such speculative transactions are usually classified as timing or selection decisions.
Timing decisions over or under weight various asset classes, industries or economic sectors
from the strategic asset allocation.
Such timing decisions are known as tactical asset allocation and selection decision deals
with securities within a given asset class, industry group or economic sector.
The investor has to begin with periodically adjusting the asset mix to the desired mix, which
is known as strategic asset allocation.
3.5 ) Portfolio Revision
Portfolio management would be an incomplete exercise without periodic review.
The portfolio, which is once selected, has to be continuously reviewed over a period of
time and if necessary revised depending on the objectives of investor.

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Thus, portfolio revision means changing the asset allocation of a portfolio.
Investment portfolio management involves maintaining proper combination of securities,
which comprise the investors portfolio in a manner that they give maximum return with
minimum risk.
For this purpose, investor should have continuous review and scrutiny of his investment
portfolio.
Whenever adverse conditions develop, he can dispose of the securities, which are not
worth.
However, the frequency of review depends upon the size of the portfolio, the sum involved,
the kind of securities held and the time available to the investor.
The review should include a careful examination of investment objectives, targets for
portfolio performance, actual results obtained and analysis of reason for variations.
The review should be followed by suitable and timely action.
There are techniques of portfolio revision.
Investors buy stock according to their objectives and return-risk framework.
These fluctuations may be related to economic activity or due to other factors.
Ideally investors should buy when prices are low and sell when prices rise to levels higher
than their normal fluctuations.
The investor should decide how often the portfolio should be revised.
If revision occurs too often, transaction and analysis costs may be high.
If revision is attempted too infrequently the benefits of timing may be foregone.
The important factor to take into consideration is, thus, timing for revision of portfolio.


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3.6 ) Portfolio Performance Evaluation
Portfolio management involves maintaining a proper combination of securities, which
comprise the investors portfolio in a manner that they give maximum return with
minimum risk.
These rates of return should be based on the market value of the assets of the fund.
Complete evaluation of the portfolio performance must include examining a measure of
the degree of risk taken by the fund.
A portfolio manager, by evaluating his own performance can identify sources of strength
or weakness.
It can be viewed as a feedback and control mechanism that can make the investment
management process more effective.
Good performance in the past might have resulted from good luck, in which case such
performance may not be expected to continue in the future.
On the other hand, poor performance in the past might have been result of bad luck.
Therefore, the first task in performance evaluation is to determine whether past
performance was good or poor.
Then the second task is to determine whether such performance was due to skill or luck.
Good performance in the past may have resulted from the actions of a highly skilled
portfolio manager.
The performance of portfolio should be measured periodically, preferably once in a month
or a quarter.
The performance of an individual stock should be compared with the overall performance
of the market.

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CHP 4 : TYPES OF PORTFOLIO MANAGEMENT SERVICE
The two types of portfolio management services are available on the investors: Discretionary
portfolio Non-discretionary Management portfolio Management
4.1 ) The Discretionary portfolio management services:
In this type of services, the client parts with his money in favor of manager, who in return,
handles all the paper work, makes all the decisions and gives a good return on the
investment and for this he charges a certain fees.
In this discretionary PMS, to maximize the yield, almost all portfolio managers parks the
funds in the money market securities such as overnight market, 182 days treasury bills and
90 days commercial bills.
Normally, return on such investment varies from 14 to 18 per cent, depending on the call
money rates prevailing at the time of investment.
4.2 ) The Non-discretionary portfolio management services:
The manager function as a counselor, but the investor is free to accept or reject the
managers advice; the manager for a services charge also undertakes the paper work.
The manager concentrates on stock market instruments with a portfolio tailor made to the
risk taking ability of the investor.


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4.3 ) Equity Portfolio Management Service:
It is logical that the expected return of a portfolio should depend on the expected return of
the security contained in it.
There are two approaches to the selection of equity portfolio.
One is technical analysis and the other is fundamental analysis.
Technical analysis assumes that the price of a stock depends on supply and demand in the
stock market.
All financial and market information of given security is already reflected in the market price.
Charts are drawn to identify price movements of a given security over a period of time.
These charts enable the investors to predict the future movement of the price of security.
Equity portfolio is a risky portfolio, but at the same time the return is also higher.
Equity portfolio provides highest returns.
An efficient portfolio manager can obviously give more weight age to fundamental analysis
than the technical analysis.
The fundamental analysis includes the study of ratio analysis, past and present track record
of the company, quality of management, government policies etc.
There may be several combinations of investment portfolio.
Allocation of funds for equity portfolio is a question of top most importance to any portfolio
manager.
Among all risky investments, selection of the best possible combination and allocation of
funds among these selected investment groups are of great importance.


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4.4 ) Bonds Portfolio Management Service:
The individual investors can invest in bond portfolio.
The portfolio can be spared over variety of securities.
Investment in bond is less risky and safe as compared to equity investment.
However, the return on bond is very low.
There are no much fluctuations in bond prices.
Therefore, there is no capital appreciation in this case.
Some bonds are tax saving which help the investor to reduce his tax liability.
There is no much liquidity in bonds, investment in bond portfolio is less risky and safe but,
return is reasonable, low liquidity and tax saving are some of the more important features of
bond portfolio investment.
However, it is suitable for normal investors for getting average return over their investment.
Bond portfolio includes different types of bond, tax free bonds and taxable bonds.
Tax free bonds are issued by public sector undertaking or Government on which interest is
compounded half yearly and payable accordingly.
They have a maturity of 7 to 10 years with the facility for buyback.
The tax free bonds means the interest income on these bonds is not taxable.
Therefore, the interest rates on these bonds are very low.
However, taxable bonds yield higher interest compounded half yearly and also payable half
yearly.
They also have buy back facilities similar to taxable bonds.


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CHP 5 : ADVANTAGES AND IMPORTANCE OF PORTFOLIO MANAGEMENT
SERVICE
5.1 ) Advantages
Individuals will benefits immensely by taking portfolio management services for the following
reason: - a) Whatever may be the status of the capital market; over the long period capital
markets have given an excellent return when compared to other forms of investment. The
return from bank deposits, units etc., is much less than from stock market. b) The Indian stock
markets are very complicated. Though there are thousands of companies that are listed only a
few hundred, which have the necessary liquidity. It is impossible for any individual wishing to
invest and sit down and analyses all these intricacies of the market unless he does nothing else.
c) Even if an investor is able to visualize the market, it is difficult to investor to trade in all the
major exchanges of India, look after his deliveries and payments. This is further complicated
by the volatile nature of our markets, which demands constant reshuffling of portfolio.
5.2 ) Importance
In the past one-decade, significant changes have taken place in the investment climate in India.
Portfolio management is becoming a rapidly growing area serving a broad array of investors-
both individual and institutional-with investment portfolios ranging in asset size from
thousands to cores of rupees. It is becoming important because of:
a) Emergence of institutional investing on behalf of individuals. A number of financial
institutions, mutual funds, and other agencies are undertaking the task of investing money of
small investors, on their behalf.

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b) Growth in the number and the size of invisible fundsa large part of household savings is
being directed towards financial assets.
c) Increased market volatility- risk and return parameters of financial assets are continuously
changing because of frequent changes in governments industrial and fiscal policies, economic
uncertainty and instability. Greater use of computers for processing mass of data.
d) Professionalization of the field and increase use of analytical methods (e.g. quantitative
techniques) in the investment decision-making, and
e) Larger direct and indirect costs of errors or shortfalls in meeting portfolio objectives-
increased competition and greater scrutiny by investors.


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CHP 6 : QUALITIES AND CODE OF CONDUCT OF PORTFOLIO MANAGER
6.1 ) Qualities
Sound general knowledge: Portfolio management is an existing and challenging job. He
has to work in an extremely uncertain and conflicting environment. In the stock market every
new piece of information affects the value of the securities of different industries in a
different way. He must be able to judge and predict the effects of the information he gets. He
must have sharp memory, alertness, fast intuition and self-confidence to arrive at quick
decisions.
Analytical Ability: He must have his own theory to arrive at the value of the security. An
analysis of the securitys values, company, etc. is continues job of the portfolio manager. A
good analyst makes a good financial consultant. The analyst can know the strengths,
weakness, opportunities of the economy, industry and the company.
Marketing skills: He must be good salesman. He has to convince the clients about the
particular security. He has to compete with the Stock brokers in the stock market. In this
Marketing skills help him a lot.
Experience: In the cyclical behavior of the stock market history is often repeated, therefore
the experience of the different phases helps to make rational decisions. The experience of
different types of securities, clients, markets trends etc. makes a perfect professional
manager.


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6.2 ) Code of Conduct
A portfolio manager shall, in the conduct of his business, observe high standards of integrity
and fairness in all his dealings with his clients and other portfolio managers.
The money received by a portfolio manager from a client for an investment purpose should
be deployed by the portfolio manager as soon as possible for that purpose and money due
and payable to a client should be paid forthwith.
A portfolio manager shall render at all-time high standards of services exercise due diligence,
ensure proper care and exercise independent professional judgment. The portfolio manager
shall either avoid any conflict of interest in his investment or disinvestments decision, or
where any conflict of interest arises; ensure fair treatment to all his customers. He shall
disclose to the clients, possible sources of conflict of duties and interest, while providing
unbiased services. A portfolio manager shall not place his interest above those of his clients.
A portfolio manager shall not make any statement or become privy to any act, practice or
unfair competition, which is likely to be harmful to the interests of other portfolio managers
or it likely to place such other portfolio managers in a disadvantageous position in relation
to the portfolio manager himself, while competing for or executing any assignment.
A portfolio manager shall not make any exaggerated statement, whether oral or written, to
the client either about the qualification or the capability to render certain services or his
achievements in regard to services rendered to other clients.
At the time of entering into a contract, the portfolio manager shall obtain in writing from the
client, his interest in various corporate bodies, which enables him to obtain unpublished
price-sensitive information of the body corporate.

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A portfolio manager shall not disclose to any clients or press any confidential information
about his clients, which has come to his knowledge.
The portfolio manager shall where necessary and in the interest of the client take adequate
steps for registration of the transfer of the clients securities and for claiming and receiving
dividend, interest payment and other rights accruing to the client. He shall also take necessary
action for conversion of securities and subscription of/or rights in accordance with the
clients instruction.
Portfolio manager shall ensure that the investors are provided with true and adequate
information without making any misguiding or exaggerated claims and are made aware of
attendant risks before they take any investment decision.
He should render the best possible advice to the client having regard to the clients needs and
the environment, and his own professional skills.
Ensure that all professional dealings are affected in a prompt, efficient and cost effective
manner.


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CHP 7 : FACTORS AFFECTING THE INVESTOR
There may be many reasons why the portfolio of an investor may have to be changed. The
portfolio manager always remains alert and sensitive to the changes in the requirements of the
investor. The following are the same factors affecting the investor, which make it necessary to
change the portfolio composition.
Change in Wealth: According to the utility theory, the risk taking ability of the investor
increases with increase in wealth. It says that people can afford to take more risk as they
grow rich and benefit from its reward. But, in practice, while they can afford, they may not
be willing. As people get rich, they become more concerned about losing the newly got riches
than getting richer. So they may become conservative and vary risk- averse. The fund
manager should observe the changes in the attitude of the investor towards risk and try to
understand them in proper perspective. If the investor turns to be conservative after making
huge gains, the portfolio manager should modify the portfolio accordingly.
Change in the Time Horizon: As time passes, some events take place that may have an
impact on the time horizon of the investor. Births, deaths, marriages, and divorces all have
their own impact on the investment horizon. There are, of course, many other important
events in the persons life that may force a change in the investment horizon. The happening
or the non-happening of the events will naturally have its effect. For example, a person may
have planned for an early retirement, considering his delicate health. But, after turning 55
years of age, if his health improves, he may not take retirement.
Change in Liquidity Needs: Investors very often ask the portfolio manager to keep enough
scope in the portfolio to get some cash as and they want. This forces portfolio manager to
increase the weight of liquid investments in the asset mix. Due to this, the amounts available

27
for investment in the fixed income or growth securities that actually help in achieving the
goal of the investor get reduced. That is, the money taken out today from the portfolio means
that the amount and the return that would have been earned on it are no longer available for
achievement of the investors goals.
Changes in Taxes: It is said that there are only two things certain in this world- death and
taxes. The only uncertainties regarding them relate to the date, time, place and mode.
Portfolio manager have to constantly look out for changes in the tax structure and make
suitable changes in the portfolio composition. The rate of tax under long- term capital gains
is usually lower than the rate applicable for income. If there is a change in the minimum
holding period for long-term capital gains, it may lead to revision. The specifics of the
planning depend on the nature of the investments.
Others: There can be many of other reasons for which clients may ask for a change in the
asset mix in the portfolio. For example, there may be change in the return available on the
investments that have to be compulsorily made with the government say, in the form of
provident fund. This may call for a change in the return required from the other investments.


28
CHP 8 : PRESENT SCENARIO AND SEBI RULES AND REGULATIONS
8.1 ) Portfolio Management Schemes in Present Scenario
The regulatory environment has totally changed now and with SEBI fixing strict norms for
companies launching PMS, only the serious players are going to enter his business.
The PMS members today have full transparency: managers are required to maintain
individual accounts showing all dealings in a clients portfolio.
They must also advise him on all transactions.
Secondly, all PMS Managers have to send their clients at least a quarterly report giving the
status of their portfolio and the transactions that have taken place.
The client-PMS manager contract is as per SEBI ground rules.
It has several checks to protect investors interest like laying the custodial responsibility on
the manager and preventing any alterations in the scheme without the clients consent.
Finally, managers have to send half-yearly reports to SEBI on their portfolio management
activities.
Experienced handling of cash and money power apart, PMS also takes care of a number of
the headaches endemic with investing in the markets. The biggest one is custodial services.
All PMS Managers act as custodians of shares and are responsible for the load of paper work
related to the share transfer, documentation work, and postal work and even ensuring that
dividends are credited to clients account.
SEBI directives also put the onus on the PMS promoters to take follow-up action in case
shares are lost or damaged.

29
Difficulties such as late transfer and postal theft are reduced in case of brokers, because they
not only have direct access to registrars but also have branch offices to ensure quicker
transfers. All these services come for a fee, of course.
While the actual PMS charges vary from a high of 7% of the amount invested to a low of
around 3.5%, follow-up services charges extra.
As in all schemes, there is a downside to putting cash into portfolio management as well.
The most important is the fact that despite all the SEBI checks.
PMS Managers are not allowed to assured any fixed returns.
This really discharges the managers for any responsibility if the scheme does badly.
So investors have to be very careful in choosing the promoters.
Problem inherent in most schemes on offer will be misused of investors funds to some
extent.
Funds collected from investors will aid the brokers concerned in their own games in the
market.


30
8.2 ) Securities and Exchange Board of India Rules and regulations, 1993 Regarding
Portfolio Managers
No person to act as portfolio manager without certificate. No person shall carry on any
activity as a portfolio manager unless he holds a certificate granted by the Board under this
regulation. Provided that such person, who was engaged as portfolio manager prior to the
coming into force of the Act, may continue to carry on activity as portfolio manager, if he
has made an application for such registration, till the disposal of such application. Provided
further that nothing contained in this rule shall apply in case of merchant banker holding a
certificate granted by the board of India Regulations, 1992 as category I or category II
merchant banker, as the case may be.
Conditions for grant or renewal of certificate to portfolio manager. The board may grant or
renew certificate to portfolio manager subject to the following conditions namely: a) The
portfolio manager in case of any change in its status and constitution, shall obtain prior
permission of the board to carry on its activities; b) He shall pay the amount of fees for
registration or renewal, as the case may be, in the manner provided in the regulations; c) He
shall make adequate steps for redressed of grievances of the clients within one month of the
date of receipt of the complaint and keep the board informed about the number, nature and
other particulars of the complaints received; d) He shall abide by the rules and regulations
made under the Act in respect of the activities carried on by the portfolio manager.
Period of validity of the certificate. The certificate of registration on its renewal, as the case
may be, shall be valid for a period of here years from the date of its issue to the portfolio
manager.


31

Registration of Portfolio Managers:

1. Application for grant of certificate: An application by a portfolio manager for grant of a
certificate shall be made to the board on Form A. Notwithstanding anything contained in sub
regulation (1), any application made by a portfolio manager prior to coming into force of
these regulations containing such particulars or as near thereto as mentioned in form A shall
be treated as an application made in pursuance of sub-regulation and dealt with accordingly.

2. Application of confirm to the requirements: Subject to the provisions of sub-regulation (2)
of regulation 3, any application, which is not complete in all respects and does not confirm
to the instructions specified in the form, shall be rejected: Provided that, before rejecting any
such application, the applicant shall be given an opportunity to remove within the time
specified such objections as may be indicated by the board.

3. Furnishing of further information, clarification and personal representation: The Board
may require the applicant to furnish further information or clarification regarding matters
relevant to his activity of a portfolio manager for the purposes of disposal of the application.
The applicant or, its principal officer shall, if so required, appear before the Board for
personal representation.

4. Consideration of application: The Board shall take into account for considering the grant
of certificate, all matters which are relevant to the activities relating to portfolio manager and

32
in particular whether the applicant complies with the following requirements namely: The
applicant has the necessary infrastructure like to adequate office space, equipments and
manpower to effectively discharge his activities; The applicant has his employment
minimum of two persons who have the experience to conduct the business of portfolio
manager; A person, directly or indirectly connected with the applicant has not been granted
registration by the Board in case of the applicant being a body corporate; The applicant,
fulfils the capital adequacy requirements specified in regulation 7. The applicant, his partner,
director or principal officer is not involved in any litigation connected with the securities
market and which has an adverse bearing on the business of the applicant; The applicant, his
director, partner or principal officer has not at any time been convinced for any offence
involving moral turpitude or has been found guilty of any economic offences; The applicant
has the professional qualification from an institution recognized by the government in
finance, law, and accountancy or business management.


33
CONCLUSION

With the help of given project I got an in-depth knowledge about the working of portfolio
management. Also I got an insight as too how to invest in portfolio management, which scheme
provide better return as compared to other and who are the portfolio management players in
the Indian market. It can be concluded from the project that future of portfolio management is
bright provided proper regulations prevail and investors needs are satisfied by providing
variety of schemes. The interest of investors is protected by SEBI. Portfolio management
service is governed by SEBI Act. Due to the benefits available to the individuals such as
reduction in risk, expert professional management, diversified portfolios, tax benefits etc.
young generation is willing to invest in different investment avenues through portfolio
manager or through mutual funds which are again managed by portfolio managers. On the
other hand, old age group of people are least interested in making investment in different
avenues through portfolio. They believe in investing and managing their portfolio on their own.
However, it can be said that the future of portfolio management is bright in years to come.


34
APPENDIX/BIBLIOGRAPHY

Articles
http://articles.economictimes.indiatimes.com/2012-11-30/news/35483315_1_pms-
portfolio-management-service-mf-regulations
http://www.motilaloswal.com/Financial-Services/Products-And-Services/Portfolio-
Management-Services/Content/C42/Tab51

Webilography
http://www.sebi.gov.in/faq/faqpms.html
http://www.investopedia.com/terms/p/portfoliomanagement.asp
http://www.kotaksecurities.com/whatweoffer/portfoliomanagement.html
http://www.indiainfoline.com/ProductsAndServices/PMS

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