Chapter -1

INTRODUCTION AND THEORETICAL

BACKGROUND

1
PROFIT MAXIMIZATION AND WEALTH CREATION

The process of Wealth Creation is understood by knowing what Wealth

Management is. Wealth Management is classified as an advanced type of financial
planning that provides High net worth individuals and families with private
banking, estate planning, asset management, and investment management, with
the goal of sustaining and growing long-term wealth. The usefulness of and the
need for wealth management is inherent in its name.

Wealth Management is an extension of financial advisory services done under

Financial Planning and involves delivery of a suite of services and managing
relationships with the clients. Wealth Management encompasses the following
aspects – a complete range of financial planning services like Risk Management,
Investment Management, Retirement Planning, Real Estate Planning, Tax
Planning, Inheritance Planning and charities giving. The difference between
Financial Planning and Wealth Management is that the former is a sole advisor’s
effort while the latter is generally a team effort.

The Project involves the process of wealth creation of an individual through

proper financial planning at the right time depending on the objectives which an
individual sets before doing a financial planning. "Wealth" has come to mean an
abundance of items of economic value, or the state of controlling or possessing
such items, and encompasses money, real estate and personal property. In many
countries wealth is also measured by reference to access to essential services such
as health care, or the possession of crops and livestock. An individual who is
wealthy, affluent, or rich is someone who has accumulated substantial wealth

2
relative to others in the society or reference group. In economics, wealth refers to
the value of assets owned minus the value of liabilities owed at a point in time.
Wealth has two components i.e. Wealth Preservation and Wealth Creation.
Wealth Preservation involves just preserving the wealth or money which is
invested into it. Examples of Wealth Preservation are Fixed Income Instruments,
Savings A/c, and Recurring Deposits, Investing in Post Office, PPF and other
Bonds. In wealth Preservation the returns are predictable and the returns are low.

Wealth Creation means creating wealth and it is not created overnight .It is a
process which takes its own time .But in Wealth Preservation we invest in certain
instruments and we reap the benefits out of it by earning returns. Wealth Creation
instruments are Investing in Metals like gold and silver, Real Estate, Equity, which
is further divided into Direct Equities and Mutual Funds, Foreign Exchange
Instruments, Insurance which is further divided into Market Linked and
Traditional Endowment etc.

The process of wealth creation takes long time. It involves a process of asset
allocation. The assets are allocated based on its risk, safety, liquidity, returns and
the tenure that one is willing to hold. Then the holding capacity has to be decided
i.e. short or medium or long term. Low risk and high safety always ends up
offering lower returns and high degree of risk & safety gives way to higher rate of
returns which is evident in the tools we choose.

Forms of Wealth Creation:

There are many options for an investor to create wealth - one can invest in fixed
income instruments or invest in equities. The former one is called Wealth
Preservation and the latter is called Wealth Creation. In wealth preservation the

3
money is invested in instruments like Fixed Income Instruments, Savings A/c, and
Recurring Deposits, Investing in Post Office, PPF and other Bonds and we get a
fixed return on the invested amount. The latter one i.e. Wealth Creation is the
process where in we actually create wealth. An individual chooses to invest in
equities and want to have return on his money and create wealth If an individual
invests in the equities i.e. shares of a company he would definitely expects a return
from it. The various forms or ways in which an individual expects to create wealth
by investing in equities are from dividend, bonus, stock split, ESOP’s, right issue
or any other monetary benefits availed by investor from the company.

CAPITAL MARKET
Capital Markets comprise of the Equities Market and the Debt Markets. Debt
Markets are markets for the issuance, trading and settlement in fixed income
securities of various types and features. Fixed income securities can be issued by
almost any legal entity like Central and State Governments, Public Bodies,
Statutory corporations, Banks and Institutions and Corporate Bodies.

INTRODUCTION TO FIXED CAPITAL MARKET

Fixed Income securities are one of the most innovative and dynamic instruments
evolved in the financial system ever since the inception of money. Fixed Income
securities offer one of the most attractive investment opportunities with regard to
safety of investments, adequate liquidity, and flexibility in structuring a portfolio,
easier monitoring, long term reliability and decent returns. They are an essential
component of any portfolio of financial and real assets, whether in form of pure

4
interest bearing bonds, innovative and varied type of debt instruments or asset-
backed mortgages and securitized instruments.

WHOLESALE DEBT MARKET SEGMENT (WDS)

The Reserve Bank of India permitted the Banks, Primary Dealers and the
Financial Institutions in India to undertake transactions in debt instruments among
themselves or with non-bank clients through the members of Bombay Stock
Exchange Limited (BSE). This notification paved the way for the Exchange to
commence trading in Government Securities and other fixed income instruments.
The Wholesale Debt Segment of the Exchange commenced its' operations on June
15, 2001.

The Debt Segment offers the market participants in the Wholesale Debt Market an
efficient and transparent trading mechanism through its GILT System. The GILT
system is envisaged to become the single point trading platform for all types of
Debt securities and instruments. The GILT system will over a period of time
provide trading facilities for Central and State Govt. securities, T-Bills,
Institutional bonds, PSU bonds, Commercial Paper, Certificates of Deposit,
Corporate debt instruments and the new innovative instruments like municipal
securities, securitized debt, mortgage loans and STRIPs.
GILT facilitates faster and efficient price dissemination through the Touchline of
the Trading System.

RETAIL DEBT SEGMENT (REDS):-

Opportunities for the Indian investors in the Retail Debt Markets in the new
millennium, presents a vast kaleidoscope of whose knowledge and participation

5
hitherto has been restricted to the Equities markets in India. The development of
the Retail Debt Market has engaged the attention of the policy makers, regulators
and the Government in the past few years. The potential of the Retail Debt
Markets can be gauged from the investor strength of more than 40 million in the
Indian Equities market who have powered the tremendous growth and
transformation of the stock markets in recent times. Recognizing this opportunity
at a very early date, it has been consistently in the forefront of the campaign for
the creation of a Retail Debt Market and has consistently expounded the potential
and need for the retail trading in G-Secs in the past few years in various important
forums and to the key regulatory authorities.

INVESTMENTS
Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver for
growth of the country. Indian financial scene too presents a plethora of avenues to
the investors. Though certainly not the best or deepest of markets in the world, it
has reasonable options for an ordinary man to invest his savings.
An investment can be described as perfect if it satisfies all the needs of all
investors. So, the starting point in searching for the perfect investment would be
to examine investor needs. If all those needs are met by the investment, then that
investment can be termed the perfect investment.
Most investors and advisors spend a great deal of time understanding the merits of
the thousands of investments available in India. Little time, however, is spent
understanding the needs of the investor and ensuring that the most appropriate
investments are selected for him.

6
The Investment Needs of an Investor

By and large, most investors have eight common needs from their investments:
1. Security of Original Capital;
2. Wealth Accumulation;
3. Comfort Factor;
4. Tax Efficiency;
5. Life Cover;
6. Income;
7. Simplicity; &
8. Ease of Withdrawal;

.
• Security of original capital: The chance of losing some capital has been a
primary need. This is perhaps the strongest need among investors in India, who
have suffered regularly due to failures of the financial system.

• Wealth accumulation: This is largely a factor of investment

performance, including both short-term performance of an investment and long-
term performance of a portfolio. Wealth accumulation is the ultimate measure
of the success of an investment decision.

• Comfort factor: This refers to the peace of mind associated with an

investment. Avoiding discomfort is probably a greater need than receiving
comfort. Reputation plays an important part in delivering the comfort factor.

7
• Tax efficiency: Legitimate reduction in the amount of tax payable is an
important part of the Indian psyche. Every rupee saved in taxes goes towards
wealth accumulation.

• Life Cover: Many investors look for investments that offer good return with
adequate life cover to manage the situations in case of any eventualities.

• Income: This refers to money distributed at intervals by an investment,

which are usually used by the investor for meeting regular expenses. Income needs
tend to be fairly constant because they are related to lifestyle and are well
understood by investors.

• Simplicity: Investment instruments are complex, but investors need to

understand what is being done with their money. A planner should also deliver
simplicity to investors.

• Ease of withdrawal: This refers to the ability to invest long term but
withdraw funds when desired. This is strongly linked to a sense of ownership. It
is normally triggered by a need to spend capital, change investments or cater to
changes in other needs. Access to a long-term investment at short notice can only be
had at a substantial cost.

The Ideal Investment strategy should be a customized one for each investor
depending on his risk-return profile, his satisfaction level, his income, and his
expectations. Accurate planning gives accurate results. And for that there must be an
efficient and trustworth roadmap to achieve the ultimate goal of wealth

8
maximization.
Choosing the Right Investment Options

After understanding the concept of investment, the investors would like to know
how to go about the task of investment, how much to invest at any moment and
when to buy or sell the securities, This depends on investment process as
investment policy, investment analysis, valuation of securities, portfolio
construction and portfolio evaluation and revision. Every investor tries to derive
maximum economic advantage from his investment activity. For evaluating an
investment avenues are based upon the rate of return, risk and uncertainty, capital
appreciation, marketability, tax advantage and convenience of investment. The
following Table should give the clear picture relating to the investors investment
decisions in various financial market instruments. The choice of the best
investment options will depend on personal circumstances as well as general
market conditions. For example, a good investment for a long-term retirement
plan may not be a good investment for higher education expenses. In most
cases, the right investment is a balance of three things: Liquidity, Safety and
Return. It is having high growth but risk is also involved.

Debentures which can not be converted into shares are known as non
convertible debentures yield on such debentures are very high. But capital
appreciation is almost negligible. Debt schemes have higher returns with higher
risk. Returns are low so risk is also low. Capital appreciation takes a long time.
Life insurance policies insure security transfer the risk to the agencies.
Residential house is a really booming seeking the need of the population so
investment in residential houses are worthy and involves higher return at a
faster pace. Gold has always been a very good investment option with today’s

9
rising demand for gold profitability and return on gold seeks extremely good
results.

Investment Option
Figure No – 1

10
Investment Options in India

Investment Options in India

Figure No - 2

11
Non Marketable Financial Assets Or Fixed Deposits - They cover the fixed
deposits of varied tenors offered by the commercial banks and other non-banking
financial institutions. These are generally a low risk prepositions as the commercial
banks are believed to return the amount due without default. By and large these
FDs are the preferred choice of risk-averse Indian investors who rate safety of
capital & ease of investment above all parameters. Largely, these investments earn
a marginal rate of return of 6-8% per annum.

Government Bonds - The Central and State Governments raise money from the
market through a variety of Small Saving Schemes like national saving
certificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds, etc. These
schemes are risk free as the government does not default in payments. But the
interest rates offered by them are in the range of 7% - 9%.

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

investment products. They are preferred because of their add-on benefits like
financial life-cover, tax-savings and satisfactory returns. Even if one does not
manage to save money and invest regularly in financial instruments, with
insurance, the policyholder has no choice. If he does not pay his premiums on
time, his insurance cover will lapse. Money-back Insurance schemes are used as
investment avenues as they offer partial cash-back at certain intervals. This
money can be utilized for children’s education, marriage, etc.

Endowment Insurance - These policies are term policies. Investors have to pay
the premiums for a particular term, and at maturity the accrued bonus and other
benefits are returned to the policyholder if he survives at maturity.

12
Bullion Market - Precious metals like gold and silver had been a safe heaven for
Indian investors since ages. Besides jewellery these metals are used for
investment purposes also. Since last 1 year, both Gold and Silver have highly
appreciated in value both in the domestic as well as the international markets. In
addition to its attributes as a store of value, the case for investing in gold revolves
around the role it can play as a portfolio diversifier.

Stock Market - Indian stock markets particularly the BSE and the NSE, had been a
preferred destination not only for the Indian investors but also for the Foreign
investors.. Although Indian Markets had been through tough times due to various
scams, but history shows that they recovered very fast. Many types of scrip had
been value creators for the investors. People have earned fortunes from the stock
markets, but there are people who have lost everything due to incorrect timings
or selection of fundamentally weak companies.

Real Estate - Returns are almost guaranteed because property values are always
on the rise due to a growing world population. Residential real estate is more than
just an investment. There are more ways than ever before to profit from real
estate investment.

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

professional fund managers that invest in the stock market collectively on behalf
of investors. Mutual funds offer a better route to investing in equities for lay
investors. A mutual fund acts like a professional fund manager, investing the
money and passing the returns to its investors. All it deducts is a management fee
and its expenses, which are declared in its offer document.

13
Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds in
terms of their structure and functioning; premium payments made are converted
into units and a net asset value (NAV) is declared for the same. In traditional
insurance products, the sum assured is the corner stone; in ULIPs premium
payments is the key component.

14
 Chapter 2

RESEARCH METHODOLOGY

15
In financial markets, expectations of the investors play a vital role. They
influence the price of the securities; the volume traded and determines quite a lot of
things in actual practice. These expectations of the investors are influenced by
their perception and humans generally relate perception to action.
The objective of the survey was to categorize investors as being inclined towards
investment products based on certain characteristic such as sex, age, occupation,
annual income etc. In addition the time horizon of investment and the real
need/purpose of investment were studied and categorized based on the above
demographic factors.

OBJECTIVE OF STUDY
1. To find the correlation between the risk appetite of the investors and
proportion of assets allocated in different instruments.
2. Factors that affect the profit maximization of investors.

SAMPLING
The sample consists of existing clients of the company and various investors
outside the company. For this purpose simple random sampling was used which
include a random selection of the investors.

RESEARCH TECHNIQUES AND APPLICATIONS

The type of research was of descriptive in nature as it involves the study of factors
that affect the investors decision. This was done by studying how the investors
analyze the risks and returns associated with various funds. The study was also

16
qualitative in nature because it involves understanding the benefits of various
investment options to the investors.

DATA COLLECTION METHODS

METHODOLOGY
The data collected includes both primary and secondary sources.
• Primary source collection through interaction with investor and questionnaire.
• Secondary sources include articles from business magazines, journals and
internet sources, individual corporate website, value research, , Ebsco

DESIGNING A QUESTIONAIRE
To understand the savings avenue preference, scheme preference, time horizon
and objectives for investment and to identify the information sources influencing
investment decision, and the preferred mode of communication, a questionnaire
(APPENDIX) was designed and the respondents were asked to rank their
preferences on a ranking scale.

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

variables were identified through evidence from past research. Based on theory,
past research, and personal judgment, the factors that could influence the
investors in their selection of investment was first grouped into 4 major groups –
important factors, internal environment of organization, external environment of
organization and news. Then the 14 identified variables were classified under
the appropriate group as follows:-

17
IMPORTANT FACTORS
1. Age is an important factor in deciding the type of investment option.
2. Rational decision in stock market often leads to profit maximization and wealth
creation.
3. Income level of a person decides the type of investment option for you.
4. Portfolio management by experts a good alternative to maximize your profit.
5. The risk appetite of the investors decide the proportion of assets allocated in
different instruments.

INTERNAL ENVIRONMENT OF THE ORGANISATION

6. The reputation of management and duration of operation.
7. The company’s M&A, innovations & ventures.
8. The company’s financial statements.

EXTERNAL ENVIRONMENT OF THE ORGANISATION

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

11.Government Stability, support and fiscal

incentives.

NEWS
12. Daily tips by brokers.
13. The performance of shares in the market in recent past is a good indicator of
future.
14. Tips from the investment gurus, portfolio managers and stock analysts.

18
In the survey, the respondents were asked to rate the importance of the 14 specified
variables on a 5 point scale ranging from Strongly Agree (5) to Strongly Disagree
(1). The data for each of the 4 sub -groups was analyzed using charts with the
objective of identifying the factor in the sub -group which turns out to be
significant in the investment selection.

DATA ANALYSIS PROCEDURE

Data was analyzed on the basis of the questionnaire via. Charts.

LIMITATIONS OF THE STUDY

• The time span for the study was short and hence only major aspects are
considered in this study.
• Number of factors included in this study is subject to high volatility such as
market position for instance change from time to time.
• Future prices of a stock or future rate of return or rate of interest cannot be
determined without proper research and hence the data may not give an
accurate picture.
• Investor’s Bias also affected the reliability of the study.

19
 Chapter 3

PROFILES

20
Industry profile
Financial services refer to services provided by the finance industry. The finance
industry encompasses a broad range of organizations that deal with the
management of money. Among these organizations are banks, credit card
companies, insurance companies, consumer finance companies, stock brokerages,
investment fund and some government sponsored enterprises.

The Indian broking industry is one of the oldest trading industries that have been
around even before the establishment of the BSE in 1875. The Indian broking
industry has come a long way in the last decade and has also undergone a
significant paradigm shift. The industry has shed most of its negative trappings of
the past & is now being considered a preferred sector. The industry has shed most
of its negative trappings of the past and is now being considered a preferred sector
for building long term careers by professionals from all disciplines.
Unprecedented growth of market volumes and growing participation by investors
spread beyond the traditional geographical pockets, coupled with professionalization
of work cultures and demand for value-added services like investment advisory
and portfolio management, has created a huge demand.
This growth story is expected to be sustained for at least a decade or even more
because of the steady increase in the investor penetration and wider acceptance of
stock investments as a reliable option for long term wealth creation. Robust all
round economic growth and favorable demographics are other important factors
which are transforming India from a nation of savers to investors. Improved
quality of the Indian regulatory framework and high compliance standards, have
led to greater transparency in all transactions and minimized the systemic risks.
The Indian Broking industry has indeed come of age & is attracting huge

21
investments from large domestic corporate houses as well as from international
players. The Indian Broking industry is now in a most exciting phase and is likely
to grow at a much faster rate compared with many other sectors. During the
financial year 2010 Q3, the equity broking turnover reported a 79% rise on year on
year basis compared to last year. The average daily turnover increased to Rs 983
billion in Q3FY10 from Rs 934 billion in Q2FY10 with lesser number of trading
days (61) during the quarter. The trading volume in cash segment declined by
16%, trading volume in option segment grew by 14% during the quarter on q-o-q
basis. On the other hand, trading volume in the future segment reported a marginal
decline during the quarter. While the equity broking volumes have remained stable
during the Q3FY09-10, a similar growth is not reflected in the equity broking
revenues of the brokerage houses on account of lower average brokerage yields on
option trades. When the number of brokerage houses are considered the financial
year 2010 shows a better result than previous year. Over past few years most of
the brokerage houses have been expanding their branch network through
franchisee route in order to gain market share while keeping a flexible cost
structure. This growth story is expected to be sustained and remain stable for at
least a decade or even more because of the steady increase in the investor
penetration and wider acceptance of stock investments as a reliable option for long
term wealth creation. The robust economic growth and favorable demographics
are other factors which are transforming India from a nation of savers to investors.

Company profile
Reliance money is a part of the reliance Anil Dhirubai Ambani Group and is
promoted by Reliance capital, the fastest growing private sector financial services
company in India, ranked amongst the top 3 private sector financial companies in
terms of net worth. Reliance Securities is a permitted user of the brand "Reliance

22
Money" for promoting its various products and services.
Reliance Securities endeavors to change the way investors transact in equities
markets and avails services. It provides customers with access to Equity,
Derivatives, Portfolio Management Services, Investment Banking, and Mutual
Funds & IPOs. It also offers secured online share trading platform and investment
activities in secure, cost effective and convenient manner. To enable wider
participation, it also provides the convenience of trading offline through variety of
means, including Call & Trade, Branch dealing Desk and its network of affiliates.

Reliance money is a comprehensive financial solution provider that enables you to

carry out trading and investment activities in a secure, cost-effective and
convenient manner. Through reliance money, you can invest in a wide range of
asset classes from Equity, Equity and commodity Derivatives, Mutual Funds,
insurance products, IPO's to availing services of Money Transfer & Money
changing. Reliance Money through its pan India presence with 6,233 outlets and
has net worth (Rs7712.5 crore as on 31st March 2010) with more than 3.5 million
customers.

Vision of Reliance Money

To achieve & sustain market leadership, Reliance Money shall aim for complete
customer satisfaction, by combining its human and technological resources, to
provide world class quality services. In the process Reliance Money shall strive to
meet and exceed customer's satisfaction and set industry standards.

Mission statement:
"Our mission is to be a leading and preferred service provider to our customers,
and we aim to achieve this leadership position by building an innovative,
enterprising , and technology driven organization which will set the highest
standards of service and business ethics."

23
Products and services

Equity
Reliance Money offers its clients competitively priced Equity broking, PMS and
Portfolio Advisory Services. Trading execution assistance provided to clients. In
addition Reliance Money provides independent and unbiased view on markets
along with trading strategies and entry / exit points for taking an informed
decision.
Mutual Funds
A mutual fund is a common pool of money into which investors place their
contributions that are to be invested in accordance with a stated objective. Then
the ownership of the fund is just "joint" and "mutual"; the fund belongs to all
investors. Reliance Money offers dedicated research & expert advice on Mutual
Funds. Mutual funds are considered to have low risk factors owing to
diversification of assets into various sectors.
Life-Insurance
Reliance Money assists its clients in choosing a customized plan which will
secure the family's future and their expenses post-retirement. Clients can choose
from different plans of almost all Insurance Companies where they can invest their
money. Clients can choose from products and services that channelise their
savings and protect their needs while guaranteeing security and returns for life. A
team of experts will suggest the best Insurance scheme which suits the client's
requirement. The important types of insurance policies in India are:
Endowment assurance policy
Money back policy
Whole life policy

24
Bonds - Bonds or debentures represent long-term debt instruments. The issuer of a
bond promises to pay a stipulated steam of cash flow. Bonds may be classified
into the following categories:
Government securities
Government of India relief bonds
Government agency securities
PSU bonds
Financial Derivatives - A financial derivative is an instrument whose value is
derived from the value of an underlying asset. It may be viewed as a side bet on
the asset. The most important financial derivatives from the point of view of
investors are:
1. Options
2. Futures
Real Estate Advisory Services
Broking Model for lease/rent and buy/sell of property
Property Valuation
Real-estate consulting - Corporate earnings model, Lease rentals, etc.
Offshore Investments
Reliance Money provides a unique opportunity to invest in international financial
markets through the online platform which includes different products.

25
 Chapter 4

ANALYSIS AND INTREPRETATION OF

DATA

26
Data was collected from the dealers and investors of the company and outside the
company. They were asked to rate the factors in terms of their preference on 5
point scale. The factors that were taken into consideration were:

1. Age
2. Rational Decision Making
3. Income
4. Portfolio Management By Experts
5. Risk Appetite of Investors
6. Reputation of Management
7. Company’s M&A
8. Company’s Financial Statement
9. Trend of Industry
10. Competitors
11. Government Decision
12. Daily Tips by Brokers
13. Performance of Share
14. Tips from Investment Gurus

27
 INVESTOR PROFILE NUMBER OF RESPONDENTS

GENDER
Male 78
Female 22
AGE
Below 30 14
31 – 40 36
41 – 50 30
Above 50 20
MARITAL STATUS
Married 58
Unmarried 42
OCCUPATION
Salaried 60
Business 26
Retired 14
ANNUAL INCOME (Rs.)
Below 1,50,000 14
1,50,000 – 3,00,000 54
3,00,000 – 4,00,000 14
Above 4,00,000 18
ANNUAL SAVING
Below 50,000 39
50,000 – 1,00,000 24
1,00,000 – 1,50,000 10
1,50,000 – 2,50,000 12
Above 2,50,000 15

Gender Distribution Sample

Table No. -1 GENDER DISTRIBUTION

Gender Respondents %
Male 78 78
Female 22 22

28
 Gender Distribution

Female
22%

Male
Female

Male
78%

Figure No – 3 GENDER DISTRIBUTION

As from the above chart we came to know that majority of the respondents are the
male respondents i.e. 78% and 22% were the female respondents.

Age Distribution

Table NO.-2 AGE DISTRIBUTION

Age Group Respondents %
Below 30 14 14
31 – 40 36 36
41 – 50 30 30
Above 50 20 20

29
 Age Distribution

Above50 Below 30
20% 14%

Below 30
31-40
41-50
31-40 Above50
41-50 36%
30%

Figure No – 4 AGE DISTRIBUTION

As it is very much clear from the above chart that majority of the investors were
from the age range of 31-40 and 41-50 i.e. 36 and 30 percent respectively.
Investment in the market requires some experience and the cycle of market. So
after having some better experience in market one can invest his or her money in a
efficient manner.

Income Distribution

Table NO.-3 ANNUAL INCOME DISTRIBUTION

Income Level Respondents %
Less Than Rs.1,50,000 14 14
Rs. 1,50,000 – Rs. 3,00,000 56 56
Rs. 3,00,000 – Rs. 4,00,000 14 14
More Than 4,00,000 18 18

30
 Annual Income Distribution
Below 150000
Above 400000
14%
18%

Below 150000
300000 - 400000 150000 - 300000
14%
300000 - 400000
Above 400000
150000 - 300000
54%

Figure No – 5 ANNUAL INCOME DISTRIBUTION

The above chart shows that major respondents i.e., 54 % fall in the slab of income
ranging from Rs 1.5-3 lakh and followed by 18% of the respondents fall under the
range of more than 4 lakh. 14% of the respondents were in the range 3-4 lakh and
below 1.5 lakh.
It is very much clear from the research that most of the respondents are belong to
middle class income. And people from lower level income are investing a small
part of their income in the market.

Annual Saving Distribution

Table No.- 4 ANNUAL SAVING DISTRIBUTION

Annual Saving Respondents %
Below Rs.50,000 39 39
Rs.50,000 – Rs.1,00,000 24 24
Rs.100000 – Rs.150000 10 10
Rs.150000- Rs.2,50,000 12 12
Above Rs.2,50,000 15 15

31
 Annual Saving Distribution

Above 250000
15%
Below 50000
39% Below 50000
150000 - 250000
12% 50000 - 100000
100000 - 150000
150000 - 250000
100000 - 150000
10% Above 250000

50000 - 100000
24%
Figure No – 6 ANNUAL SAVING DISTRIBUTION

From the above chart it is clear that 39% of the people save below Rs.50000
followed by 24% of the people who save Rs.50000 – Rs.100000. 15% of the people
save above Rs.250000.
It is very much clear from the research that most of the respondents belong to
lower level income and some lower middle class people.

Occupation Distribution

Table No. - 5 OCCUPATION DISTRIBUTION

Occupation Respondents %
Salaried 60 60
Businessman 26 26
Retired 14 14

32
 Occupation Distribution

Retired
14%

Salaried
Business
Business Retired
26% Salaried
60%

Figure No – 7 OCCUPATION DISTRIBUTION

From the above Chart it is clear that a majority of the sample who are interested in
making investment are salaried people i.e.60% followed by businessmen i.e. 26%.
It is very much clear from the research that the salaried people are more ready to
take the risk than those who are businessman as the businessmen are always under
the risk of liquidity.
And the retired people don’t want to take much risk because their source of
income is very less.

Investment Type Distribution

Table No.- 6 INVESTMENT TYPE DISTRIBUTION

Investment Option Respondents %
Equity 30 30
Bnds 7 7
Mutual Fund 8 8
Real Estate 15 15
Others 40 40

33
 Investment Type Distribution

Equity
Others 30%
40% Equity
Bonds
Mutual Fund
Bonds
7% Real Estate
Others
Real Estate Mutual Fund
15% 8%
Figure No – 8 INVESTMENT TYPE DISTRIBUTION
The above chart explains about the respondents investment in different options, a
majority of the investors invest in others i.e. FD, Insurance, Gold, etc. 30% of the
investors invest in equity and 15% of the investors invest in Real Estate. Very few
people have invested in the mutual fund and bonds.
In India, people invest more into FD, Gold, and Insurance as these are more
popular in India and people feel it to be a more safe investment option. The young
generation people want fast money and are ready to take more risk so they invest
into equity.

Investment Distribution Based On Experience

Table No.- 7 INVESTMENT DISTRIBUTION BASED ON EXPERIENCE

Investment Respondents %
Mutual Fund 26 21
Bank F. D 52 41
Insurance 14 11
Real Estate 34 27

34
 Investment Distribution Based On Experience

Real Estate Mutual Fund

27% 21%

Mutual Fund
Bank F.D.
Insurance
Insurance Real Estate
Bank F.D.
11% 41%

Figure No – 9 INVESTMENT DISTRIBUTION BASED ON EXPERIENCE

As we can infer from the above graph that when it comes to safe return most of the
investors believes that Bank F.D. is the most secured investment. But when it is
asked to respondent that if they want safety with maximum return among these
four option then, the opinion of the respondent were deviated.
As it is very much clear from the above chart that when it comes to safety with
maximum return then also around 41% of the respondents believe that Bank F.D.
is the only option.

Investment Purpose

Table No.- 8 INVESTMENT PURPOSE

Investment Purpose Respondents %
Listing Gains 2 2
Long Term Gains 80 80
Short Term Gains 18 18

35
 Investment Purpose
Listing Gains
Short Term Gains 2%
18%

Listing Gains
Long Term Gains
Short Term Gains

Long Term Gains

80%
Figure No – 10 INVESTMENT PURPOSE
Major chunk of investors invest their money in securities market for short term
gains. Long term investors hold their equities for long in order to have one time
gain whereas 80% of investors have more risk appetite and they invest regularly to
have return on their investment. They do not hold the investment for long, instead
they do regular investment. Only 2% invest their money for listing gains in public
securities.

Option On ETF

Table No.- 9 OPTION ON ETF

Option On ETF Respondents %
Yes 38 38
No 20 20
Can’t Say 42 42

36
 Opinion On ETF's

Yes
Can't Say Yes
38%
42%
No
Can't Say

No
20%

Figure No – 11 OPTIONS ON ETF

An exchange-traded fund (or ETF) is an investment vehicle traded on stock

exchanges, much like stocks. An ETF holds assets such as stocks or bonds and
trades at approximately the same price as the net asset value of its underlying
assets over the course of the trading day. Most ETFs track an index, such as the
S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their
low costs, tax efficiency, and stock-like features.
As we can see from the above graph that though ETF’s has become a very good
investment option now days but still majority of the people are not aware of
ETF’s. And around 38% of the respondents said that yes ETF’s can be a good tool
making money in market.
And around 20% of the respondents said that ETF’s can’t be a useful instrument
for making money.

Factor Affecting Investment Decision

37
Table No.- 10 FACTOR AFFECTING INVESTMENT DECISION
Factor Affecting Investment Respondents %
Random Pick 4 4
Friend’s Advice 21 21
Own Research 40 40
Newspaper 22 22
Broker Advice 13 13

Factor Affecting Investment Decision

Broker Advice Random Picks
13% 4%

Friends Advice Random Picks

21% Friends Advice
Newspaper/TV
22% Own Research
Newspaper/TV
Broker Advice
Own Research
40%
Figure No.-12 FACTOR AFFECTING INVESTMENT DECISION

Sector

Table No.- 11 Sector

Sectors Respondents %
Power 18 10
Capital Goods 8 4
Infrastructure 40 22
Banking 44 25
Real Estate 28 16
Pharmaceutical 10 6
Insurance 6 3

38
Retail 6 3
FMCG 8 4
Steel 3 2
Oil & Gas 5 3
IT 4 2

FMCG Steel
Sector
4% 2% Oil & Gas IT Power
3%
2% Capital Goods Capital Goods
Insurance 4%
Power Infrastructure
3%
Retail 10% Banking
Pharmaceutical 3% Real Estate
6%
Pharmaceutical
Infrastructure Insurance
22% Retail
Real Estate
FMCG
16%
Steel
Banking Oil & Gas
Figure No – 13 SECTOR 25% IT

As it is very much clear from the above chart and the statistics that most of the
respondents said that the Infrastrusture and the banking sector will give the
maximum return in the upcoming next year. 22% of the respondents selected the
banking sector as the most and 20% of the respondents feels that Infrastructure
sector will give the maximum return.
Since after this slowdown government of india has given some bailout packages to
the economy and out of that sizeable proportion will be given to infrastructure
development segment. Despite the slowdown specially in the rual segment and in
semi-urban area many of new Infrastructure project has started and also the
government of india has alloted 40,000 crores for the “Bharat Nirman Yojana”.
So the investors are thinking of that Infrastructure sector will lead the market rally
in the future.

39
Since, all the Infrastructure project are based on power and energy so 9% of the
investors are thinking that power and energy sector will give them maximum
return.
And also we have seen that from the jan 2009 to may 2009 both the sector
infrastructure and real estate has given almost 85 and 78 percent return
respectively in just period of 5 months.
FMCG sector in india is growing at 16% y-o-y basis. And recession has not
affected much this industry so its keep on growing as its pace. Around 8% of the
respondents feels that FMCG sector can give them maximum return.
5% of the respondents believes that pharmaceutical sector will give them
maximum return in the next year.

40
Income Vs Saving

In c o m e V s S a v in g

100
90
80
70
60
P e rce n tag e 50
40
30
20
10 Above 400000
300000-400000
0 150000-300000 B elow 150000
B elow 150000 A n n u a l In co m e
150000-300000
Below 50000

50000-100000

100000-150000

300000-400000
150000-250000

Above 250000

Above 400000

A n n u a l S a vin g

50000- 100000- 150000- Above

B elow 50000
100000 150000 250000 250000
B elow 150000 100 0 0 0 0
150000-300000 88 9 3 0 0
300000-400000 30 47 15 8 0
Above 400000 12 18 25 28 17

41
Figure No – 14 INCOME VS SAVING

Age Vs Time Horizon

42
 Age Vs T ime Horizon

50

45

40
35
30
Pe rce n tag e2 5

20
15 Below
10 31-4 0
Above 50
41-5 0
5 41-50
Above
0 31-40 Ag e
Belo w Below 3 0
1-3 Ye ar
1Year 3-5 Year
Above 5
Years
Time O f De p o sit

Below 1Ye ar 1-3 Year 3-5 Ye ar Abo ve 5 Years

Below 30 25 50 25 0
31-40 29 29 43 0
Figure No – 15 Age Vs Time Horizon
41-50 38 38 23 0
Age
Above 50 29 29 24 19

Table No.- 12 Age

Age Respondents %

43
Strongly Agree 15 15
Agree 25 25
Neither Agree Nor Disagree 8 8
Disagree 32 32
Strongly Disagree 20 20

Age

Strongly Disagree Strongly Agree

20% 15%
Strongly Agree
Agree
Agree
Neither Agree Nor Disagree
25%
Disagree
Disagree Strongly Disagree
32% Neither Agree Nor
Disagree
8%
Figure No – 16 Age

From the above chart it is clear that a majority of the investors i.e. 32% believe
that age does not affect the investment decision of the investors and 25% of the
investors believe that age affect the investment decision of the investors.

Rational Decision

Table No.- 13 Rational Decision

Rational Decision Respondents %
Strongly Agree 18 18
Agree 65 65
Neither Agree Nor Disagree 4 4

44
Disagree 5 5
Strongly Disagree 8 8

Rational Decision
Strongly Disagree
8% Strongly Agree
18%
Disagree
5% Strongly Agree
Agree
Neither Agree Nor Disagree
Neither Agree Nor
Disagree Disagree
4% Strongly Disagree

Agree
65%
Figure No – 17 Rational Decision

From the above chart it is clear that more than half of the investors i.e. 65%
believe that rational decision making help in profit maximization of the investors.
And there are only few people who believe that rational decision making does not
help in profit maximization of the investors.

Income Level

Table No.- 14 Income Level

Income Level Respondents %
Strongly Agree 3 3
Agree 4 4
Neither Agree Nor Disagree 10 10
Disagree 68 68
Strongly Disagree 15 15

45
 Income Level
Strongly Agree
Agree Neither Agree Nor
3%
4% Disagree
10%
Strongly Disagree
15% Strongly Agree
Agree
Neither Agree Nor Disagree
Disagree
Strongly Disagree

Disagree
68%
Figure No – 18 Income Level

From the above chart it is clear that a majority of the investors i.e.68% believe that
income level of the people does not affect the investment decision of the investors.
And there are only few investors who believe that income level of the people
affect the investment decision of the investors.

Portfolio Management By Experts

Table No.- 15 PORTFOLIO MANAGEMENT BY EXPERTS

Portfolio Management By Respondents %
Experts
Strongly Agree 12 12
Agree 10 10
Neither Agree Nor Disagree 18 18
Disagree 40 40
Strongly Disagree 20 20

46
 Portfolio management By Experts
Strongly Agree
Strongly Disagree 12%
20%
Agree Strongly Agree
10%
Agree
Neither Agree Nor Disagree
Disagree Disagree
Neither Agree Nor
40% Disagree Strongly Disagree
18%

Figure No – 19 PORTFOLIO MANAGEMENT BY EXPERTS

From the above chart it is clear that a majority of the investors i.e.40% of the
investors believe that portfolio management by expert does not affect the
investment decision of the investors. And there are only few investors who believe
that portfolio management by expert affect the investment decision of the
investors. People have such approach because portfolio managers are generally
looking for their their wealth maximization and they take neglect the need of the
investor.

Risk Appetite Of Investors

Table No.- 16 Risk Appetite Of Investors

Risk Appetite Of Investors Respondents %
Strongly Agree 3 3
Agree 4 4
Neither Agree Nor Disagree 10 10
Disagree 68 68

47
Strongly Disagree 15 15

Risk Appetite Of Investors

Strongly Disagree
Disagree 2% Strongly Agree
8% 12%

Strongly Agree
Neither Agree Nor
Agree
Disagree
6% Neither Agree Nor Disagree
Disagree
Strongly Disagree

Agree
72%
Figure No – 20 RISK APPETITE OF INVESTORS

From the above chart it is clear that a majority of the investors i.e.72% of the
investors are ready to take the risk as they feel that the more risk they will take the
more return they will get.
There are only few investors who believe in making safe investment and are not
ready to take any risk. As people grow older their risk appetite decrease and they
look for safer form of investment. Young people are fast moving and they are
willing to take more risk so they invest in those form of investment which pay
them maximum return.so risk appetite of investors decide the form of investment.

Reputation Of Management

48
Table No.- 17 Reputation Of Management
Reputation Of Management Respondents %
Strongly Agree 10 10
Agree 61 61
Neither Agree Nor Disagree 4 4
Disagree 19 19
Strongly Disagree 6 6

Reputation Of Management

Strongly Disagree Strongly Agree

6% 10%

Strongly Agree
Disagree
19% Agree
Neither Agree Nor Disagree
Disagree
Neither Agree Nor Strongly Disagree
Disagree
Agree
4%
61%
Figure No – 21 REPUTATION OF MANAGEMENT

From the above chart it is clear that a majority of the investors i.e.61% of the investors
Focus on the reputation of the company before making any investment decision. And
there are only few investors for whom the reputation of the company does not affect their
investment decision. Well reputed companies have more liquidity and safety so people
seem to be more interested in that.

Company’s M&A

Table No.- 18 COMPANY’S M&A

Company’s M&A Respondents %
Strongly Agree 7 7

49
Agree 10 10
Neither Agree Nor Disagree 13 13
Disagree 52 52
Strongly Disagree 18 18

Company's M&A
Strongly Agree
Strongly Disagree 7% Agree
18% 10%
Strongly Agree
Agree
Neither Agree Nor Disagree
Neither Agree Nor
Disagree Disagree
13% Strongly Disagree

Disagree
52%
Figure No -22 COMPANY’S M&A
From the above chart it is clear that a majority of the investors i.e.52% of the
investors does not focus on the company’s merger and acquisition before making
any investment decision. And there are only few investors for whom the
company’s merger and acquisition affect their investment decision.

Company’s Financial Statement

Table No.- 19 COMPANY’S FINANCIAL STATEMENT

Company’s Financial Respondents %
Statement
Strongly Agree 7 7
Agree 10 10
Neither Agree Nor Disagree 13 13
Disagree 52 52

50
Strongly Disagree 18 18

Company's Financial Statement

Disagree Strongly Disagree
Strongly Agree
9% 1%
25%

Strongly Agree
Neither Agree Nor Agree
Disagree Neither Agree Nor Disagree
1%
Disagree
Strongly Disagree

Agree
64%
Figure No – 23 COMPANY’S FINANCIAL STATEMENT

The financial statement of a company shows the performance of the company and
thus helps in the investment decision. The performance of the industry affect the
investment of the investors as everyone wants to make secure investment with
more return.From the above chart it is clear that a majority of the investors i.e.64%
of the investors give importance to company’s financial investment before making
any investment decision. And there are only few investors for whom the
company’s financial investment does not affect their investment decision.

51
Industry Trend

Table No.- 20 INDUSTRY TREND

Industry Trend Respondents %
Strongly Agree 2 2
Agree 8 8
Neither Agree Nor Disagree 10 10
Disagree 68 68
Strongly Disagree 12 12

Industry Trend
Strongly Agree
Agree Neither Agree Nor
2%
8% Disagree
Strongly Disagree 10%
12% Strongly Agree
Agree
Neither Agree Nor Disagree
Disagree
Strongly Disagree

Disagree
68%
Figure No – 24 INDUSTRY TREND

From the above chart it is clear that a majority of the investors i.e.68% of the investors
Does not give importance the industry trend before making any investment decision. And
there are only few investors for whom the industry trend does not matter.

52
Competitors

Table No.-21 COMPETITORS

Competitors Respondents %
Strongly Agree 4 4
Agree 13 13
Neither Agree Nor Disagree 20 20
Disagree 58 58
Strongly Disagree 5 5

Competitors
Strongly Agree
Strongly Disagree 4% Agree
5% 13%

Strongly Agree

Neither Agree Nor Agree

Disagree Neither Agree Nor Disagree
Disagree 20% Disagree
58% Strongly Disagree

Figure No – 25 COMPETITORS

In the market there are various competitors and they offer different products of
different variety. So the investors opt for those products which give the maximum
return. And there are many investors for whom the company matter. They are
loyal to the company.

From the above chart it is clear that a majority of the investors i.e.58% of the
investors

53
Does not give importance to the competitors. And there are only few investors for
whom the competitors matter.

Government Decision

Table No.- 22 GOVERNMENT DECISION

Government Decision Respondents %
Strongly Agree 6 6
Agree 71 71
Neither Agree Nor Disagree 9 9
Disagree 4 4
Strongly Disagree 10 10

Government Decision
Strongly Disagree
Strongly Agree
10%
6%
Disagree
4%
Strongly Agree
Agree
Neither Agree Nor Neither Agree Nor Disagree
Disagree Disagree
9%
Strongly Disagree
Agree
71%
Figure No – 26 GOVERNMENT DECISION
The government decision affects the investor’s decision a lot. Due to the
fluctuation in the tax policies by the government there are changes in the % of
savings by individuals, simultaneously giving an impact on their investment
decisions.

54
From above chart it is clear that a majority of investors i.e. 71% focus on the
government policies before making investment decision. There are only few
investors who does not give importance to the government decision.

Tips By Broker

Table No.-23 TIPS BY BROKER

Tips By Broker Respondents %
Strongly Agree 1 1
Agree 17 17
Neither Agree Nor Disagree 22 22
Disagree 47 47
Strongly Disagree 13 13

Tips By Broker
Strongly Agree
1% Agree
Strongly Disagree
17%
13%
Strongly Agree
Agree
Neither Agree Nor
Disagree Neither Agree Nor Disagree
22% Disagree
Disagree Strongly Disagree
47%

Figure No – 27 TIPS BY BROKER

55
From above chart it is clear that a majority of investors i.e. 47% focus on the tips
given by the broker before making investment decision. There are only few
investors who agree that tips given by the broker are fruitful.

Performance Of Share

Table No.- 24 PERFORMANCE OF SHARE

Performance Of Share Respondents %
Strongly Agree 10 10
Agree 5 5
Neither Agree Nor Disagree 34 34
Disagree 46 46
Strongly Disagree 5 5

Performance Of Share
Strongly Disagree Strongly Agree
Agree
5% 10%
5%

Strongly Agree
Agree

Disagree Neither Agree Nor Disagree

46% Disagree
Neither Agree Nor
Disagree Strongly Disagree
34%

Figure No – 28 PERFORMANCE OF SHARE

From above chart it is clear that 46% of the investors give importance to the
performance of the share followed by 34% of the investors who neither agree nor

56
disagree that performance of share affect their investment decisions. There are
only few who feel that performance of share help them in there their investment
decision.
Tips From Investment Gurus

Table No.- 25 TIPS FROM INVESTMENT GURUS

Tips From Investment Respondents %
Gurus
Strongly Agree 10 10
Agree 5 5
Neither Agree Nor Disagree 34 34
Disagree 46 46
Strongly Disagree 5 5

Tips From Investment Guru's

Strongly Agree
Strongly Disagree
4% Agree
8%
8%
Strongly Agree
Agree
Neither Agree Nor Neither Agree Nor Disagree
Disagree Disagree
Disagree
50% 30%
Strongly Disagree

Figure No – 29 TIPS FROM INVESTMENT GURUS

There are many investors who does not go with the investment tips given by the
investment guru’s. They themselves keep an eye on what is happening in the
market and accordingly take decision.

57
From the above chart it is clear that 50% of the investors does not invest based on
tips given by the gurus followed by 30% who neither agree nor disagree with this.
Only few investors give importance to the tips given by the investors and go with
it.

Chapter 5

FINDINGS AND CONCLUSIONS

58
FINDINGS

• Before constructing a portfolio, thorough research of investment options are

required.

• Allocate assets to obtain the desired portfolio characteristics to suit distinct

investor profile.

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

• Diversify portfolio to lower investment risk.

• Investor should track portfolio by following the performance of his

selection.

• Observe a few Do’s and Don’ts of Investing.

59
 • There is no specific investment vision for a customer though he has
lifestyle aspirations

• Safety over returns is still practiced where risk-return trade off is not seen
and understood from the right perspective

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

than taking advice or paying for right advice.

• It was found that there are basically five most important factors which
affect the investors decision – rational decision making, risk appetite of
investors, management reputation, company’s financial statement and the
government stability, support and fiscal incentives.

CONCLUSION:-

It’s indeed a great pleasure to learn the micro and macro prospective of profit
maximization & wealth preservation. Though a layman who wishes to multiplied
his investment with a short span of time but is unaware of the macro factors like
inflation, interest rate, govt. policies, industry competitiveness, sector performance
and the like.

On the micro front, by means of carefully keeping track of corporate quarter

results, business plan, future prospective, growth, return on investment,
management effectiveness etc

60
By means of this project, I understand the various investment avenues with respect
to safety, liquidity and return. It definitely adds a new dimension of analyzing
investment option and tailoring according to the need of investor.

In India, only 3% of entire population invests in equities which are due lack of
awareness, low risk appetite, fear of losing money, unable to attend stock market
and economic factor as a whole etc.
Once an investor makes an attempt to learn the basic fundamental of the
investment, he will minimize his risk and will be able to meet his financial
requirement as and when arrive.

61
 Chapter – 6

SUGGESSTIONS AND RECOMMENDATIONS

PORTFOLIO CONSTRUCTION
An individual after deciding his financial goals he would understand the terms
long-term, short-term, intermediate goals and then decide on as to how much of
money he need to get to achieve his financial goal. Then the individual should
decide upon various avenues for investment like equities, FDs, metals, post office,
speculative and real estate etc.

STEPS INVOLVED IN PORTFOLIO CONSTRUCTION

In today's financial marketplace, a well-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

62
strategies. In other words, your portfolio should meet your future needs for capital
and give you peace of mind. Investors can construct portfolios aligned to their
goals and investment strategies by following a systematic approach. Here we see
some essential steps for taking such an approach.

Step 1: Determining the Appropriate Asset Allocation

Ascertaining your individual financial situation and investment goals is the first
task in constructing a portfolio. Important items to consider are age, how much
time you have to grow your investments, as well as amount of capital to invest and
future capital needs.
A second factor to take into account is your personality and risk tolerance. The
possibility of greater returns comes at the expense of greater risk of losses (a
principle known as the risk/return tradeoff) - you don't want to eliminate risk so
much as optimize it for your unique condition and style. Generally, the more risk
you can bear, the more aggressive your portfolio will be, devoting a larger portion
to equities and less to bonds and 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.

Figure No – 30 CONSERVATIVE PORTFOLIO

63
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.

Figure No – 31 MODERATELY AGGRESSIVE PORTFOLIO

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.

64
There are several ways you can go about choosing the assets and securities to
fulfill your asset allocation strategy:

• Stock picking - Choose stocks that satisfy the level of risk you want to carry
in the equity portion of your portfolio - sector, market cap and stock type
are factors to consider. Analyze the companies using stock screeners to
shortlist potential picks, than carry out more in-depth analysis on each
potential purchase to determine its opportunities and risks going forward.
This is the most work-intensive means of adding securities to your
portfolio, and requires you to regularly monitor price changes in your
holdings and stay current on company and industry news.
• Bond picking - When choosing bonds, there are several factors to 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,

65
 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 over-
weighted and those that are under-weighted. For example, say you are holding
30% of your current assets in small-cap equities, while your asset allocation
suggests you should only have 15% of your assets kept in that class. You need to
determine how much of this position you need to reduce and allocate to other
classes.

Step 4: Rebalancing Strategically

66
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.

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

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

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

67
If the markets gain, decrease the exposure to equity by a suitable percentage.

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

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

Equity exposure: 60; Debt exposure: 40

Asset Equity Debt Total

class
Initial 60 40 100
allocation

When markets gain:

distortion 66 41 107
10% 2.5%
rebalance 61.68 38.3 100
(excess 2
1.68)
When markets dip:
distortion 54 39 93
10% 2.5%
rebalance 58.06 41.9 100
3

68
Rebalancing portfolio will not only help to maintain original asset-allocation
strategy but also implement any change in investing style. Essentially, rebalancing
will help one to stick to his investing plan regardless of what the market does.

Financial Discipline: -
An individual should have a proper financial discipline. The following points
would explain what financial discipline is all about: -
• Identify the difference between your earning potential minus your
expenditure
• Identify your short / medium / long / very long term goals
• Identify your dreams with those goals
• Look at Inflation as the biggest threat
• Set achievable goals
• Allocate funds on low risk / high risk basis
• Increase quantum towards high risk when you are young and keep
decreasing as you age

Asset Allocation Process: -

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

risk, safety, liquidity, returns and the tenure that one is willing to hold
 Further these instruments should be segregated based on the horizon of
investments (holding capacity or holding period) – short/medium/long or
ultra long term.

69
  Each investment class has its own restrictions in terms of safety, liquidity,
returns and tenure; low risk and high safety always ends up offering lower
returns and high degree of risk & safety gives way to higher rate of returns
which is evident in the tools we choose.

Allocation Methods: -
The allocation of his investment into various asset classes also depends on his age
as when he is young he can take a lot of risk compared to when he is growing old.
When his age is between 25-28 years he should invest more in equities and
aggressive SIPs i.e. (Systematic Investment Plan) etc. When his age is between
28-30 years he should start off with real estate and should have more than 75% of
his investment in equities. When his age is between 30-35 years then he should
have 60-65% of his investments in equities and should continue with the SIPs.
When his age is between 35-45 years he should have 50% in equities, insurance
premiums etc.

70
71
 Chapter- 7

BIBLIOGRAPHY

BIBLIOGRAPHY

BOOKS AND JOURNALS:

1.Shanmugham, R., (2000), “Factors Influencing Investment Decisions ,
Indian Capital Markets Trends and Dimensions (ed.)”, Tata McGraw-Hill
Publishing Company Limited, New Delhi.
2. Benjamin Graham, “The Intelligent Investor”, Harper Business Publication,
Fourth Revised Edition.
3. Aswanth Damodaran (2006), “Investment Fables”, Pearson Education Second
Impression
4. Prasanna Chandra, “Investment Analysis And Portfolio Management”
5. Naresh Maihotra, “Review Of Marketing Research”, Volume 5

72
WEBSITES:
• www.asiamoney.com

• www.investopedia.com

• www.bseindia.com

• www.nseindia.com

• www.sebi.gov.in

• www.capitalmarket.com

• www.ebscohost.com

Chapter – 8

APPENDIX

73
 QUESTIONAIRRE

This survey is for the sole purpose of collecting data for a survey carried out by
the SCHOOL OF COMMUNICATION AND MANAGEMENT STUDIES
(SCMS-COCHIN) Management students for internship thesis. Information in
this survey would not be disclosed for any other purpose. We are very much
grateful to you for your cooperation and time.

PERSONAL DETAILS
Name: Mr./Ms________________
Contact Number: _________________
Gender:
Male Female
Age Group:
Below 30 30 - 40 40 - 50 50 and above
Income:
< 150000 150000-300000 300000- 4000000 >400000

74
Occupation:
Salaried Businessman Retired

1. How long have you been active in the market (In terms of trade done in years)?
0-1 2-5 5+

2. Average Yearly Investment:

Up to Rs.1, 00,000 Rs.1, 00,000 to Rs. 250000 < Rs. 250000

3. Trading Preference:
Intraday Delivery Both

4. Trading Status till date:

Net gain Net loss Breakeven

5. Which investment option fascinates you the most?

Equity Bonds Mutual Funds Real Estate Others

6. I have professional knowledge in Stock Markets: Yes NO

7. According to your investment experience which forms can give safe and maximum return?
Mutual Fund Bank F.D Insurance Real Estate

8. Purpose of Investment?
Listing gains Long Term gains Short term gains

9. Type of Investment:
Margin funding Self Hybrid

10. I have professional knowledge in Stock Markets: Yes NO

11. Do you thinks ETF’s can be a good financial tool for earning profit?

75
 Yes No

12. What is the basis of your investment?

Random Picks Friends Advice Own Research

Newspaper/TV Broker Advice

13.Name any two sector which can give you maximum return in stock market in next one year
period?

Power Capital Goods Infrastructure

Banking Real Estate Pharmaceutical

Insurance Retail FMCG

Steel Oil & Gas IT

Please specify your views about investment options and wealth creation.

5:-Stronly Agree 4:-Agree 3:-Neither Disagree nor Agree 2:-Disagree 1:-Stronly

Disagree

14. Age is an important factor in deciding the type of

investment option?
15. Do you think that rational decision in stock market
often leads to profit maximization and wealth creation?

16. Income level of a person decides the type of investment

option for you?

17. Do you consider portfolio management by experts a

good alternative to maximize your profit?

18. The risk appetite of the investors decide the proportion

of assets allocated in different instruments

GIVE MARKS OUT OF 5 TO EACH OF THE ATTRIBUTES FOR THEIR

IMPORTANC E WHILE MAKING A INVESTMENT DECISION

Give: 1 for Highly Important Factor Please feel free to leave any
Give: 2 for Important question that you can’t understand
Give: 3 for Moderately Important Unmarked
Give: 4 for Less Important
Give: 5 for Not at all Important

FACTORS AFFECTING INVESTMENT DECISION

Internal Environment of the Organization

76
19. The reputation of management and duration of

operation.

20. The company’s M&A, innovations & ventures.

21. The company’s financial statements.

External Environment of the Organization

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

23.Competitors.

24.Government stability, support and fiscal incentives.

News

25. Daily tips by brokers.

26. The performance of shares in the market in recent past

is a good indicator of future.

27. Tips from the investment gurus, portfolio managers

and stock analysts.

Other significant factors. If any?

I am thankful for the time and effort you have spent in filling this questionnaire.

77