Venu 42 Report
Venu 42 Report
Venu 42 Report
A portfolio is a collection of assets. The assets may be physical or financial like Shares, Bonds,
Debentures, Preference Shares, etc. The individual investor or a fund manager would not like
to put all his money in the shares of one company that would amount to great risk. He would
therefore, follow the age old maxim that one should not put all the eggs into one basket. By
doing so, he can achieve objective to maximize portfolio return and at the same time
various financial assets which comprise the portfolio. Portfolio management is a decision –
support system that is designed with a view to meet the multi-faced needs of investors. The
portfolio is also built up of the wealth or income of the investor over a period of time with a
view to suit is return or risk preference to that of the port folio that he holds. The portfolio
securities in the portfolio and changes that may take place in combination with other securities
due interaction among them and impact of each on others. Portfolio analysis includes portfolio
performance of the portfolio. All these are part of the portfolio management. The traditional
portfolio theory aims at the selection of such securities that would fit in will with the asset
preferences, needs and choices of the investors. Thus, retired executive invests in fixed income
securities for a regular and fixed return. A business executive or a young aggressive investor on
the other hand invests in and rowing companies and in risky ventures. The modern portfolio
theory postulates that maximization of returns and minimization of risk will yield optional
returns and the choice and attitudes of investors are only a starting point for investment
decisions and that vigorous risk returns analysis is necessary for optimization of returns.
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1.2 Need of the Study
Portfolio management has emerged as a separate academic discipline in India. Portfolio theory
that deals with the rational investment decision-making process has now become an integral
part of financial literature. Investing in securities such as shares, debentures & bonds is
profitable well as exciting. It is indeed rewarding but involves a great deal of risk & need
artistic skill. Investing in financial securities is now considered to be one of the most risky
avenues of investment. It is rare to find investors investing their entire savings in a single
security. Instead, they tend to invest in a group of securities. Such group of securities is called
as Portfolio. Creation of portfolio helps to reduce risk without sacrificing returns. Portfolio
management deals with the analysis of individual securities as well as with the theory &
practice of optimally combining securities into portfolios. The modern theory is of the view
that by diversification, risk can be reduced. The investor can make diversification either by
those producing different types of product lines. Modern theory believes in the perspective of
The Scope of the Study is confined to Portfolio Management at HDFC Securities Ltd. This
study covers the Markowitz Model and individual Standard Deviation of ICICI Income funds,
KOTAK Income funds, TATA income funds for six month periods from July-2013 to
December-2013.
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1.4 Objectives of the Study
To study and analyze portfolio management of ICICI, KOTAK AND TATA Income Funds
To identify best combination of funds that maximizes profit and minimizes risk.
Company Website
Data collection was strictly confined to secondary source. No primary data is associated
Detailed study of the topic was not possible due to limited time period.
Only mutual funds of selected company’s were used to construct the portfolio.
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Industry Profile
Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years
ago. The earliest records of security dealings in India are meager and obscure. The East India
Company was the dominant institution in those days and business in its loan securities used to
be transacted towards the close of the eighteenth century.By 1830's business on corporate
stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list
was broader in 1839, there were only half a dozen brokers recognized by banks and merchants
during 1840 and 1850.The 1850's witnessed a rapid development of commercial enterprise and
brokerage business attracted many men into the field and by 1860 the number of brokers
In 1860-61 the American Civil War broke out and cotton supply from United States of Europe
was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about
200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began
(for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87).
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found
a place in a street (now appropriately called as Dalal Street) where they would conveniently
assemble and transact business. In 1887, they formally established in Bombay, the "Native
Share and Stock Brokers' Association" (which is alternatively known as " The Stock Exchange
"). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in
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Other Leading Cities in Stock Market Operations
Ahmadabad gained importance next to Bombay with respect to cotton textile industry. After
1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were
floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokers
What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta. After
the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was
followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and
1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange
Association"In the beginning of the twentieth century, the industrial revolution was on the way
in India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel
enterprise was reached.Indian cotton and jute textiles, steel, sugar, paper and flour mills and all
companies generally enjoyed phenomenal prosperity, due to the First World War.
In 1920, the then demure city of Madras had the maiden thrill of a stock exchange functioning
in its midst, under the name and style of "The Madras Stock Exchange" with 100 members.
However, when boom faded, the number of members stood reduced from 100 to 3, by 1923,
In 1935, the stock market activity improved, especially in South India where there was a rapid
increase in the number of textile mills and many plantation companies were floated. In 1937, a
stock exchange was once again organized in Madras - Madras Stock Exchange Association
(Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange Limited).Lahore
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Stock Exchange was formed in 1934 and it had a brief life. It was merged with the Punjab
The Second World War broke out in 1939. It gave a sharp boom which was followed by a
slump. But, in 1943, the situation changed radically, when India was fully mobilized as a
supply base.
On account of the restrictive controls on cotton, bullion, seeds and other commodities, those
dealing in them found in the stock market as the only outlet for their activities. They were
anxious to join the trade and their number was swelled by numerous others. Many new
associations were constituted for the purpose and Stock Exchanges in all parts of the country
were floated.
The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited (1940)
and Hyderabad Stock Exchange Limited (1944) were incorporated.In Delhi two stock
exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and
Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi
Post-Independence Scenario
Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was
closed during partition of the country and later migrated to Delhi and merged with Delhi Stock
Exchange.Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.
Most of the other exchanges languished till 1957 when they applied to the Central Government
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for recognition under the Securities Contracts (Regulation) Act, 1956. Only Bombay, Calcutta,
Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established exchanges, were
recognized under the Act. Some of the members of the other Associations were required to be
admitted by the recognized stock exchanges on a concessional basis, but acting on the principle
of unitary control, all these pseudo stock exchanges were refused recognition by the
Government of India and they thereupon ceased to function. Thus, during early sixties there
were eight recognized stock exchanges in India (mentioned above). The number virtually
remained unchanged, for nearly two decades. During eighties, however, many stock exchanges
were established: Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association
Limited (at Kanpur, 1982), and Pune Stock Exchange Limited (1982), Ludhiana Stock
Exchange Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock
Exchange Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986),
Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited
(1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange
Limited (at Baroda, 1990) and recently established exchanges - Coimbatore and Meerut. Thus,
at present, there are totally twenty one recognized stock exchanges in India excluding the Over
The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India
Limited (NSEIL).
Trading in Indian stock exchanges are limited to listed securities of public limited companies.
They are broadly divided into two categories, namely, specified securities (forward list) and
companies with a paid-up capital of atleast Rs.50 million and a market capitalization of atleast
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Rs.100 million and having more than 20,000 shareholders are, normally, put in the specified
Two types of transactions can be carried out on the Indian stock exchanges: (a) spot delivery
transactions "for delivery and payment within the time or on the date stipulated when entering
into the contract which shall not be more than 14 days following the date of the contract" : and
(b) forward transactions "delivery and payment can be extended by further period of 14 days
each so that the overall period does not exceed 90 days from the date of the contract". The latter
is permitted only in the case of specified shares. The brokers who carry over the outstandings
pay carry over charges (cantango or backwardation) which are usually determined by the rates
of interest prevailing.A member broker in an Indian stock exchange can act as an agent, buy
and sell securities for his clients on a commission basis and also can act as a trader or dealer as
a principal, buy and sell securities on his own account and risk, in contrast with the practice
prevailing on New York and London Stock Exchanges, where a member can act as a jobber or a
broker only.The nature of trading on Indian Stock Exchanges are that of age old conventional
style of face-to-face trading with bids and offers being made by open outcry. However, there is
a great amount of effort to modernize the Indian stock exchanges in the very recent times.
The traditional trading mechanism prevailed in the Indian stock markets gave way to many
functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly long
settlement periods and benami transactions, which affected the small investors to a great extent.
To provide improved services to investors, the country's first ringless, scripless, electronic stock
exchange - OTCEI - was created in 1992 by country's premier financial institutions - Unit Trust
of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank
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of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance
Trading at OTCEI is done over the centres spread across the country. Securities traded on the
Listed Securities - The shares and debentures of the companies listed on the OTC can be
bought or sold at any OTC counter all over the country and they should not be listed
anywhere else
Permitted Securities - Certain shares and debentures listed on other exchanges and units
Initiated debentures - Any equity holding atleast one lakh debentures of a particular
OTC has a unique feature of trading compared to other traditional exchanges. That is,
certificates of listed securities and initiated debentures are not traded at OTC. The original
certificate will be safely with the custodian. But, a counter receipt is generated out at the
counter which substitutes the share certificate and is used for all transactions.
In the case of permitted securities, the system is similar to a traditional stock exchange. The
difference is that the delivery and payment procedure will be completed within 14 days.
Compared to the traditional Exchanges, OTC Exchange network has the following advantages:
OTCEI has widely dispersed trading mechanism across the country which provides
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Greater transparency and accuracy of prices is obtained due to the screen-based
scripless trading.
Since the exact price of the transaction is shown on the computer screen, the investor
In the case of an OTC issue (new issue), the allotment procedure is completed in a
month and trading commences after a month of the issue closure, whereas it takes a
Thus, with the superior trading mechanism coupled with information transparency investors are
With the liberalization of the Indian economy, it was found inevitable to lift the Indian stock
market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange was
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Wholesale debt market operations are similar to money market operations - institutions and
corporate bodies enter into high value transactions in financial instruments such as government
securities, treasury bills, public sector unit bonds, commercial paper, certificate of deposit,
etc.0.
Recognized members of NSE are called trading members who trade on behalf of themselves
and their clients. Participants include trading members and large players like banks who take
Trading at NSE takes place through a fully automated screen-based trading mechanism which
adopts the principle of an order-driven market. Trading members can stay at their offices and
execute the trading, since they are linked through a communication network. The prices at
which the buyer and seller are willing to transact will appear on the screen. When the prices
match the transaction will be completed and a confirmation slip will be printed at the office of
Advantages of NSE
NSE brings an integrated stock market trading network across the nation.Investors can trade at
the same price from anywhere in the country since inter-market operations are streamlined
coupled with the countrywide access to the securities.Delays in communication, late payments
and the malpractice’s prevailing in the traditional trading mechanism can be done away with
greater operational efficiency and informational transparency in the stock market operations,
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Bombay Stock Exchange (BSE)
Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd. and
established as "The Native Share and Stock Brokers' Association") is one of Asia’s fastest stock
exchanges, with a speed of 200 microseconds and one of India’s leading exchange groups. BSE
is a corporatized and demutualised entity, with a broad shareholder-base that includes two
leading global exchanges, Deutsche Bourse and Singapore Exchange, as strategic partners. BSE
provides an efficient and transparent market for trading in equity, debt instruments, derivatives,
and mutual funds. It also has a platform for trading in equities of small-and-medium enterprises
(SME). Over the past 139 years, BSE has facilitated the growth of the Indian corporate sector
More than 5000 companies are listed on BSE, making it the world's top exchange in terms of
listed members. The companies listed on BSE Ltd. command a total market capitalization of
USD 1.51 Trillion as of May 2014.[1] It is also one of the world’s leading exchanges (3rd
largest in March 2014) for Index options trading (Source: World Federation of Exchanges).
BSE also provides a host of other services to capital market participants, including risk
management, clearing, settlement, market data services, and education. It has a global reach
with customers around the world and a nation-wide presence. BSE systems and processes are
designed to safeguard market integrity, drive the growth of the Indian capital market, and
stimulate innovation and competition across all market segments. BSE is the first exchange in
India and the second in the world to obtain an ISO 9001:2000 certification and the Information
Security Management System Standard BS 7799-2-2002 certification for its On-Line trading
System (BOLT). It operates one of the most respected capital market educational institutes in
the country (the BSE Institute Ltd.). BSE also provides depository services through its Central
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BSE’s popular equity index - the S&P BSE SENSEX (Formerly SENSEX) - is India's most
widely tracked stock market benchmark index. It is traded internationally on the EUREX as
well as leading exchanges of the BRCS nations (Brazil, Russia, China and South Africa). On
Tuesday, 19 February 2013 BSE has entered into Strategic Partnership with S&P DOW JONES
INDICES and the SENSEX has been renamed as "S&P BSE SENSEX".
Company Profile
HDFC Securities Ltd is a leading stock broking companies in India and a subsidiary of HDFC
Bank- a renowned private sector bank. As a stock broking company, it has completed 10 years
of operation serving a diverse customer base of retail and institutional investors. It has a proven
It gives priority to one’s financial needs and interests. It simplifies investing and provides 360-
degree view on financial planning that suit future goals and needs.
HDFC Securities Ltd offers a suite of products and services across various asset classes such as
equity, gold, debt and real estate. Be it stocks, derivatives, mutual fund, fixed deposits, NCDs,
insurance, bonds, currency derivatives or PMS, It has a product that suits each investment
needs.
One can trade with us via online, mobile, telephone at any of its branches. These multiple
platforms make one’s trading experience highly convenient and hassle-free. One can even place
an order for IPO / NCD applications though trading account online or through its 24 Hour
Customer Care Number. Similarly, there is no need to issue cheque or delivery instructions.
Through its 4-in-1 Advantage account, one can seamlessly move funds and securities within
seamless trading experience on both the exchanges BSE and NSE.Its mobile trading application
is compatible to all smart phones such as Blackberry, Android, Windows, Java and Iphone.
Once one activates mobile trading on smart phone, one can place order in Equities &
HDFC Securities Ltd offers the right news and views that impacts money. It empowers its
clients with accurate and unbiased research so that they can make an informed investment
decision
Just investing money is not enough. The investor has to monitor his portfolio to ensure that
money works hard to build a robust financial portfolio. Its portfolio tracker can be used to
monitor entire financial portfolio, which encompasses various asset classes. One can also make
Branches
HDFC Securities Ltd caters investment needs through its 190 plus branches. Its 24-Hour
Customer Care Services facility also offers services in 7 regional languages to get investment
Theoretical Review
Portfolio Management
A portfolio is a collection of securities. Since it is rarely desirable to invest the entire funds of
the portfolio context. Thus it seems logical that the expected return of each of the security
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Portfolio analysis considers the determination of future risk and return in holding various
blends of the individual securities. Portfolio expected return is a weighted average of the
expected return of individual securities but portfolio variances, in short contrast, can be
something less than a weighted average of security variance. As a result an investor can
sometimes reduce portfolio risk by adding security with greater individual risk than any other
security in the portfolio. This is because risk depends greatly on the co-variance among returns
of individual security. Portfolio which is combination of securities may or may not take an
Since portfolios expected return is a weighted average of the expected return of its securities,
the contribution of each security to the portfolio’s expected returns depends on its expected
returns and its proportionate share of the initial portfolio’s market value. It follows that an
investor who simply wants the greatest possible expected return should hold one security; the
one’ which is considered to have a greatest, expected return. Very few investors do this, and
very few investments advisors would counsel such an extreme policy. Instead, investors should
diversify, meaning that their portfolio should include more than one security.
securities. It is a dynamic and flexible concept and involves regular and systematic analysis,
judgments and actions. The objective of this service is to help the unknown investors with the
a portfolio bases upon the investors objectives, constraints, preferences for risk and return and
tax ability. The portfolio is reviewed and adjusted from time to time in tune with the market
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conditions. The evaluation of portfolio is to be done in terms of targets set for a risk and return.
The changes in the portfolio are to be effected to meet the changing conditions.
Portfolio construction refers to the allocation of surplus funds in hand among a variety of
will give a beneficial result if they are grouped in a manner to secure higher return after taking
into consideration the risk elements. The modern theory is of the view that by diversifications,
risk can be reduced. The investor can make diversification either by having a large number of
type’s products lines. Modern theory believes in the perspective of combination of securities
formulated.
Review and monitoring of the performance of the portfolio.
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1. Identify Goals and Objectives
4. Select Investments
5. Monitor Progress
1. Risk of a portfolio
2. Returns on a portfolio
Risk
Existence of volatility in the occurrence of an expected incident is called risk. Higher the
unpredictability greater is the degree of risk. The risk any or may not involve money. In
investment management, risk involving pecuniary matter has importance; the financial sense of
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risk can be explained as the volatility of expected future incomes or outcomes. Risk may give a
positive or a negative result. If unimagined incident is a positive one, then people have a
pleasant surprise. To be able to take negative risk with the same spirit is difficult but not
Types of Risk
Systematic Risk
The systematic risk affects the entire market often we read in the news paper that the stock
market is in the bear hug or in the bull grip. This indicates that the entire market is moving in a
particular direction either downward or upward. The economic conditions, political situations
and the sociological changes affect the security market. The recession in the economy affects
the profit prospects of the industry and the stock market. The systematic risk is further divided
A. Market risk
Market risk can be defined as that portion of total variability of return caused by the alternative
forces of bull and bear markets. The forces that affect the stock market are tangible and
intangible events are real events such as earthquake, war, and political uncertainty.
B. Interest Rate Risk
Interest rate risk is the variation in the single period rates of return caused by the fluctuations in
the market interest rate. Most commonly interest rate risk affects the price of bonds, debentures
and stocks. The fluctuations on the interest rates are caused by the changes in the government
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policy and the changes that occur in the interest rate of the treasury bills and government
bonds.
Variations in the returns are caused also by the loss of purchasing power of currency. Inflation
is a reason behind the loss of purchasing power. The level of inflation proceeds faster than the
increase in capital value. Purchasing power risk is the probable loss in the purchasing power of
Unsystematic Risk
Unsystematic risk stem from managerial inefficiency, ethnological change in the production
process, availability of raw material, changes in the consumer preference, and labor problems.
The nature and the magnitude of the above – mentioned factors differ from industry to industry,
and company to company. They have to be analyzed separately for each industry and firm.
Business Risk
Business risk is that position of the unsystematic risk caused by the operating environment of
the business. Business risk arises from the inability of a firm to maintain its competitive edge
and the growth and stability of the earnings. The variation in the expected operating income
indicates the business risk. Business risk can be divided into internal business risk and external
This risk is associated with the optional efficiency of the firm. The following are the few:
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Fluctuations in the sales
Personal development
Fixed cost
Single product
This risk is the result of the operating conditions imposed on the firm by circumstances beyond
its control. The external environment in which it operated exerts some pressure on the firm.
Financial Risk
This risk relates to the method of financing, adopted by the company, high leverage lending to
larger debt servicing problems or short term liquidity problems due to bad debts, delayed
receivables and fall in current assets or rise in current liabilities. These problems could no
doubt be solved, but they may lead to fluctuations in the earnings, profits and dividends to
shareholders. Sometimes, if the company runs into losses or reduced profits, these may lead to
fall in returns to investors or negative returns. Proper financial planning and other financial
The borrower or issuer of securities may become insolvent or may default, or delay the
payments due, such as interest installments or principle repayments. The borrower’s credit
rating might have fallen suddenly and he became default prone and in its extreme from it may
lead to insolvency or bankruptcies. In such cases, the investor may get no return or negative
returns. An investment in a healthy company’s share might turn out to be a waste paper, if
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within a short span, by the deliberate mistakes of management or acts of god, the company
became sick and its share price tumbled below its face price.
Risk an A Portfolio
Risk on a portfolio is different from the risk on individual securities. This risk is related in the
variability of the returns from zero to infinity. The expected return depends on the probability
of the returns and their weighted contribution to the risk of the portfolio. There are two
measures of the risk in this context one is the absolute deviation and the other standard
deviation.
Return of Portfolio
Each security in a portfolio contributes returns in the proportion of its investment in security.
Thus, the portfolio expected return is the weighted average of the expected returns, from each
of the securities, with weights representing the proportionate share of the security in the total
investment. Why an investor does have so many securities in his portfolio the answer to this
question lie in the investor’s perception of risk attached to the investment, his objectives of
income, safety, appreciation, liquidity and hedge against the loss of value of money etc.
This pattern of investment in different asset categories security categories types of instrument
etc. Would all be described under the caption of diversification which aims at the reduction or
even elimination of unsystematic or company related risks and achieve the specific objectives
of the investor.
Portfolio management service helps investor to make a wise choice among alternative
investments without any post training hassles. This service renders optimum returns to the
investors by a proper selection by continuous shifting of portfolio from one scheme to other
scheme or from one brand to the other brand within the same scheme. Any portfolio manager
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must specify the maximum return, optimum returns and risk, capital appreciation, safety etc in
their offer.
From the return angle securities can be classified into two types
Debt – partly convertible and non convertible debt with tradable warrant.
Preference shares
Equity shares
Portfolio manager have to decide upon the mix of securities on basis of contract with the client
and objective of the portfolio. Portfolio managers in the Indian context, has been brokers (big
brokers) who on the basis of their experience, market trend, insider trading personal contact and
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The traditional approach to portfolio building has some basic assumptions. First, the individual
prefers larger to smaller returns from securities. To achieve this goal, the investor has to take
more risk. The ability to achieve higher returns is dependent upon his ability to judge risk and
his ability to take specific risks. The risks are namely interest rate risk, purchasing power risk,
financial risk and marketing risk. The investor analysis the varying degrees of risk and
constructs his portfolio. At first, he established the minimum income that he must have to avoid
hardship under most adverse economic condition and then he decides risk of loss of income
that can be tolerated. The investor makes a series of compromises on risk and non- risk factors
like taxation and marketability after he has assessed the major risk categories, which he is
trying minimize.
Alpha
Alpha is the difference between the horizontal axis and line’s interaction with y axis. It
measures the unsystematic risk of the company. If alpha is a positive return, then that scrip will
have higher returns. If alpha = 0 then the regression line goes through the origin and its return
Beta
Beta describes the relationship between the stocks return and the market index returns. This can
be positive and negative. It is the percentage change in the price of the stock regressed or
related to the percentage change in the market index. If beta is 1, a one- percentage change in
market index will lead to one percentage change in price of the stock. If beta is 0, stock price is
unrelated to the market index and if the market goes up by a+1%, the stock price will fall by
1% beta measures the systematic market related risk, which cannot be eliminated by
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diversification. If the portfolio is efficient, beta measures the systematic risk effectively. On the
other hand alpha measures the unsystematic risk, which can be reduced by efficient
diversification.
Measurement of Risk
The driving force of systematic and unsystematic risk causes the variation in returns of
securities. Efforts have to be made by researchers, expert’s analysts, theorists and academicians
in the field of investment to develop methods for measuring risk in assessing the returns on
investments.
Total Risk
The total risk of the investment comprises of diversifiable risk and non diversifiable risk, and
this relation can be computed by summing up diversifiable risk and non-diversifiable risk.
Diversifiable Risk
Any risk that can be diversified is referred to as diversifiable risk. This risk can be totally
large variety of assets into a portfolio. The precise measure of risk of a single asset is its
contribution to the market portfolio of assets, which is its co-variance with market portfolio.
This measure does not need any additional cost in terms of money but requires a little
prudence. It is un- diversifiable risk of individual asset that is more difficult to tackle.
Assigning of the risk premium is one of the traditional methods. The fundamental tenet in the
financial management is to trade off between risk and return. The return from holding equity
securities is derived from the dividend steam and price changes. One of the methods of
quantifying risk and calculating expected rate of return would be to express the required rate as
R = I + p + b + f + m +o, where
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I = real interest rate (risk free rate)
comparative analysis of various investment alternatives is a rational method for quantifying risk
and return.
Probability distribution of returns is very helpful in identifying expected returns and risk. The
spread of dispersion of the probability distribution can also be measured by degree of variation
Outcomes on the investments do not have equal probability occurrence hence it requires
For the purpose of computing variance, deviations are to be squared before multiplying with
probabilities.
1. Equity Portfolio
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Equity portfolio is influenced by internal and external factors.
Internal factors affect inner working of the company. The company’s growth plans are analyzed
with respect to balance sheet and profit & loss accounts of the company. External factors are
2. Equity Analysis
Under this method future value of shares of a company is determined. It can be done by ratios
One can estimate the trend of earnings by analyzing EPS which reflects the trend of earnings,
quality of earnings, dividend policy and quality of management. Further price earnings ratio
Selection of portfolio
Certain assumptions were made in the traditional approach for portfolio selection, which are
discussed below
Investors prefer large to smaller returns from securities and take more risk.
An investor can select the best portfolio to meet his requirements from the efficient frontier, by
following the theory propounded by Markowitz. Selection process is based on the satisfaction
Portfolio revision
Having constructed the optimal portfolio, the investor has to constantly monitor the portfolio to
ensure that it continues to be optimal. As the economy and financial markets are dynamic, the
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changes take place almost daily. The investor now has to revise his portfolio. The revision leads
to purchase of new securities and sale of some of the existing securities from the portfolio.
Portfolio Evaluation
Portfolio managers and investors who manage their own portfolios continuously monitor and
review the performance of the portfolio. The evaluation of each portfolio, followed by revision
The ability to diversify with a view to reduce and even eliminate all unsystematic risk and
expertise in managing the systematic risk related to the market by use of appropriate risk
measures, namely, betas. Selection of proper securities is thus the first requirement.
Methods of Evaluation
It depends on total risk rate of the portfolio. Return of the security compare with risk free rate
of return, the excess return of security is treated as premium or reward to the investor. The risk
of the premium is calculated by comparing portfolio risk rate. While calculating return on
security any one of the previous methods is used. If there is no premium Sharpe index shows
negative value (-). In such a case portfolio is not treated as efficient portfolio.
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Sharpe’s ratio (sp) = rp – RF / σp, where,
evaluated highest index is treated as first rank. That portfolio can be treated as better portfolio
compared to other portfolios. Ranks are prepared on the basis of descending order.
It is another method to measure the portfolio performance. Where systematic risk rate is used to
compare the unsystematic risk rate. Systematic risk rate is measured by beta. It is also called
it is different method compared to the previous methods. It depends on return of security which
is calculated by using capm. The actual security returns is less than the expected return of capm
the difference is treated as negative (-) then the portfolio is treated as inefficient portfolio.
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Σp= portfolio standard deviation
This method is also called “reward to variability “method. When more than one portfolio is
evaluated highest index is treated as better portfolio compared to other portfolios. Ranks are
Portfolio analysis
Portfolios which are the combinations of securities may or may not take the aggregate
characteristics of their individual parts. Portfolio analysis considers the determination of future
risk and return in holding various blends of individual securities. An investor can sometimes
reduce portfolio risk by adding another security with greater individual risk than any other
security in the portfolio. This seemingly curious result occurs because risk depends greatly on
the covariance among returns of individual securities. An investor can reduce expected risk
Traditional approach.
Modern approach.
The traditional approach basically deals with two major decisions. Traditional security analysis
recognizes the key importance of risk and return to the investor. Most traditional methods
recognize return as some dividend receipt and price appreciation over a forward period. But the
return for individual securities is not always over the same common holding period, nor are the
rates of return necessarily time adjusted. An analysis may well estimate future earnings and a
p/e ratio to derive future price. He will surely estimate the dividend.
29
In any case, given an estimate of return, the analyst is likely to think of and express risk as the
possibilities).each security ends up with some rough measures of likely return and potential
Portfolios or combinations of securities are thought of as helping to spread risk over many
securities may specify only broadly or nebulously. Auto stocks are, for examples, recognized as
risk interrelated with fire stocks, utility stocks display defensive price movement relative to the
market and cyclical stocks like steel, and so on. This is not to say that traditional portfolio
explicit terms. They are determining the objectives of the portfolio and Selection of securities
Normally this is carried out in four to six steps. Before formulating the objectives, the
constraints of the investor should be analyzed. Within the given frame work of constraints,
objectives are formulated. Then based on the objectives securities are selected. After that risk
and return of the securities should be studied. The investor has to assess the major risk
categories that he or she is trying to minimize. Compromise of risk and non-risk factors has to
be carried out. Finally relative portfolio weights are assigned to securities like bonds, stocks
The traditional approach is a comprehensive financial plan for the individual needs such as
housing, life insurance and pension plans. But these types of financial planning approaches are
Markowitz gives more attention to the process of selecting the portfolio. His planning can be
applied more in the selection of common stocks portfolio than the bond portfolio. The stocks
are not selected on the basis of need for income or capital appreciation. But the selection is
30
based on the risk and return analysis, return includes market return and dividend. The investor
needs return and it may be either in the form of market return or dividend.
The investor is assumed to have the objectives of maximizing the expected return and
minimizing the risk. Further, it is assumed that investors would take up risk in a situation when
adequately rewarded for it. This implies that individuals would prefer the portfolio of highest
expected return for a given level of risk. In the modern approach the final step is asset
allocation process that is to choose the portfolio that meets the requirement of the investor.
Portfolio Construction
Portfolio is combination of securities such as stocks, bonds and money market instruments. The
process of blending together the broad assets classes so as to obtain optimum return with
Minimization of Risks
The company specific risks (unsystematic risks) can be reduced by diversifying into a few
companies belonging to various industry groups, asset group or different types of instruments
like equity shares, bonds, debentures etc. Thus, asset classes are bank deposits, company
deposits, gold, silver, land, real estate, equity shares etc. Industry group like tea, sugar paper,
cement, steel, electricity etc. Each of them has different risk – return characteristics and
investments are to be made, based on individual’s risk preference. The second category of risk
Commonly there are two approaches in the construction of the portfolio of securities
Traditional approach
31
In the traditional approach, investors needs in terms of income and capital appreciation are
evaluated and then appropriate securities are selected to, meet the needs of investors. The
common practice in the traditional approach is to evaluate the entire financial plan of the
individuals. In the modern approach, portfolios are constructed to maximize the expected return
for a given level of risk. It view portfolio construction in terms of the expected return and the
Efficient Portfolio
investments in a basket and designate them as portfolio one to ‘n’. Then the expected returns
from these portfolios are to be worked out and then portfolios are to be estimated by measuring
the standard deviation of different portfolio returns. To reduce the risk, investors have to
higher expected return with the same risk or lower risk with the same expected return. A
portfolio is said to be efficient when it is expected to yield the highest returns for the level of
risk accepted or, alternatively, the smallest portfolio risk or a specified level of expected return.
of ‘n’ securities and an efficient set of portfolio is the subset of ‘n’ security universe.
The investor selects the particular efficient that provides him with
Markowitz model
Harry m.markowitz has credited and introduced the new concept of risk measurement and their
application to the selection of portfolios. He started with the idea of investors and their desire to
32
maximize expected return with the least risk.markowitz model is a theoretical frame work for
analysis of risk and return and their relationships. He used statistical analysis for the
efficient manner. His framework lead to the concept of efficient portfolios, which are expected
to yield the highest return for, given a level of risk or lowest risk for a given level of return.
Risk and return two aspects of investment considered by investors. The expected return may
vary depending on the assumptions. Risk index is measured by the variance or the distribution
around the mean its range etc, and traditionally the choice of securities depends on lower
variability where as Markowitz emphasizes on the need for maximization of returns through a
The risk of each security is different from that of other and by proper combination of securities,
called diversification, one can form a portfolio where in that of the other offsets the risk of one
partly or fully. In other words, the variability of each security and covariance for his or her
returns reflected through their inter-relationship should be taken into account. Thus, expected
returns and the covariance of the returns of the securities with in the portfolio are to be
considered for the choice of a portfolio. A set of efficient portfolios can be generated by using
the above process of combining various securities whose combined risk is lowest for a given
level of return for the same amount of investment, that the investor is capable of the theory of
The analytical frame work of Markowitz model is based on several assumptions regarding the
The investor invests his money for a particular length of time known as holding period.
At the end of holding period, he will sell the investments.
33
Then he spends the proceeds on either for consumption purpose or for reinvestment
purpose or sum of both. The approach therefore holds good for a single period holding.
The market efficient in the sense that, all investors are well informed of all the facts
about the stock market.
All investors are risk averse. Investors study how the security returns are co-related to
each other and combine the assets in an ideal way so that they give maximum returns
with the lowest risk. He would choose the best one based on the relative magnitude of
these two parameters.
The investors base their decisions on the price-earnings ratio. Standard deviation of the
rate of return, which is been offered on the investment, is one of the important criteria
considered by the investors for choosing different securities.
Markowitz Diversification
Markowitz postulated that diversification should not only aim at reducing the risk of a security
by reducing its variability of standard deviation, but by reducing the co-variance or interactive
theoretically possible to have a range of risk varying from zero to infinity. Markowitz theory of
possible, covariance to have as much as possible negative interactive effect among the
securities with in the portfolio and coefficient of correlation to have -1 (negative) so that the
overall risk of portfolio as whole is nil or negligible than the securities have to be combined in
Efficient Frontier
As for Markowitz model minimum variance portfolio is used for determination of proportion of
investment in first security and second security. It means a portfolio consists of two securities
only. When different portfolios and their expected return and standard deviation risk rates are
34
Efficient frontier is graphical representation on the base of the optimum point this is to identify
the portfolio which may give better returns at low risk. At that point the investor can choose
On “x” axis risk rate of portfolio (s.d of p), and on “y” axis return on portfolios are to be
shown. Calculate return on portfolio and standard deviation of portfolio for various
combinations of weights of two securities. Various returns are shown in the graphical and
Multiply the funds invested in the each component with the weights.
Equation: rp = w1r1+w2r2+w3r3+…………..+wnrn
The rate of return on portfolio is always weighted average of the securities in the portfolio.
35
Estimation of Portfolio Risk
A useful measure of risk should take into account both the probability of various possible bad
outcomes and their associated magnitudes. Instead of measuring the probability of a number of
different possible outcomes and ideal measure of risk would estimate the extent to which the
actual outcome is likely to diverge from the expected outcome. Two measures are used for this
purpose:
Standard deviation
In order to estimate the total risk of a portfolio of assets, several estimations are needed:
1. The predicted return on the portfolio is simply a weighted average of the predicted returns
2. The risk of the portfolio depends not only on the risk of its securities considered in isolation,
but also on the extent to which they are affected similarly by underlying events.
3. The deviation of each securities return from its expected value is determined and the product
4. The variance in a weighted average of such products, using the probabilities of the events as
weight.
It is believed that spreading the portfolio in two securities is less risky than concentrating in
only one security. If two stocks, which have negative correlation, were chosen on a portfolio
risk could be completely reduced due to the gain in the whole offset the loss on the other. The
36
effect of two securities, one more risky and other less risky, on one another can also be studied.
Corner Portfolios
A number of portfolios on the efficient frontier are corner portfolios, it may be either new
security or security or securities dropped from previous efficient portfolios. By swapping one
security with other the portfolio expected return could be increased with no change in its risk.
Dominance Principle
It has been developed to understand risk return trade off conceptually. It states that efficient
frontier always assumes that investors prefer return and dislike risk.
The Markowitz model is confronted with several criticisms on both theoretical and practical
point of view.
Another criticism related to this theory is rational investor can avert risk.
Most of the works stimulated by Markowitz uses short term volatility to determine whether
the expected rate of return from a security should be assigned high or a low expected
variance, but if an investor has limited liquidity constraints, and is truly a long term holder,
and then price volatility per share does not really pose a risk. Rather in this case, the
question concern is one ultimate price realization and not interim volatility.
Involved in calculating the various measure of risk and return. There was a general criticism
Security analysts are not comfortable in calculating covariance among securities while
Under CAPM model the changes in prices of capital assets in stock exchanges can be measured
by using the relationship between security return and the market return. So it is an economic
model describes how the securities are priced in the market place. By using CAPM model the
return of security can be calculated by comparing return of security with market place. The
difference of returns of security and market can be treated as highest return and the risk premium
of the investor is identified. It is the difference between the return of security and risk free rate of
Assumptions
The CAPM model depends on the following assumptions, which are to be considered while
is needed to reduce the risk factor. All investors want to maximize the return by assuming
investors can borrow or lend an unlimited amount of fund at risk free rate of interest. There
securities. All the securities are divisible and tradable in capital market.
Beta
Beta described the relationship between the stock return and the market index returns. This can
be positive and negative. It is the percentage change is the price of his stock regressed (or
related) to the percentage changes in market index. If beta is 1, a one- percentage changes in
38
market index will lead to one percentage change in price of the stock. If beta is 0, stock price is
un related to the market index if the market goes up by a +1%, the stock price will fall by 1%
beta measures the systematic market related risk , which cannot be eliminated by
diversification. If the portfolio is efficient, beta measures the systematic risk effectively.
Evaluation process
o Systematic risk
o Unsystematic risk
3. Systematic risk is calculated by the investor by comparison of security return with market
return.
Higher value of beta indicates higher systematic risk and vice versa. When number of securities
is hold by an investor, composite beta or portfolio can be calculated by the use of weights of
4. Risk free rate of return is identified on the basis of the market conditions. The following two
Under CAPM model capital market line determined the relationship between risk and return of
efficient portfolio. When the risk rates of market and portfolio risk are given, expected return
39
T = risk free rate of return
Identifies the relationship of return on security and risk free rate of return. Beta is used to
identify the systematic risk of the premium. The following equation is used for expected return.
Erp = t + β (rm – t)
Rm = return of market
Limitations of CAPM
The calculation of beta factor is not possible in certain situations due to more assets are
The assumption of unlimited borrowings at risk free rate is not certain. For every
The wealth of the shareholder or investor is assessed by using security return. But it is not
For every transfer of security transition cost is required on every return tax must be paid
40
Returns, Variance and Standard Deviation of ICICI Income Funds for July-2013
6.00
4.00
2.00
0.00
1 3 5 7 9 11 13 15 17 19
-2.00
Graph 1.1
Interpretation
The above graph represents the returns of ICICI Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.44 with price
Variation of 2.21and risk factor being 1.49. Thus it can be said that risk is very high when
compared to returns.
41
Returns, Variance and Standard Deviation of ICICI Income Funds for August-2013
3.00
2.00
1.00
0.00
Series1
-1.00 1 3 5 7 9 11 13 15 17 19
-2.00
-3.00
-4.00
Graph1.2
Interpretation
The above graph represents the returns of ICICI Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is -0.38 with price
variation of 1.46 and risk factor being. Thus it can be said that risk is very high when compared
to returns.
42
Returns, Variance and Standard Deviation of ICICI Income Funds for Sep-2013
3.00
2.00
1.00
0.00
-1.00 1 3 5 7 9 11 13 15 17 19 Series1
-2.00
-3.00
-4.00
-5.00
Graph 1.3
Interpretation
The above graph represents the returns of ICICI Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is -0.02 with price
variation of 3.07 and risk factor being 1.75 Thus it can be said that risk is very high when
compared to returns.
43
Returns, Variance and Standard Deviation of ICICI Income Funds for Oct-2013
3.00
2.00
1.00
0.00 Series1
1 3 5 7 9 11 13 15 17 19
-1.00
-2.00
-3.00
Graph 1.4
Interpretation
The above graph represents the returns of ICICI Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.37 with price
variation of 1.35 and risk factor being 1.16. Thus it can be said that risk is very high when
compared to returns.
44
Returns, Variance and Standard Deviation of ICICI Income Funds for Nov-2013
MONTH OF NOV-2013
2.50
2.00
1.50
1.00
0.50 Series1
0.00
-0.50 1 3 5 7 9 11 13 15 17 19
-1.00
-1.50
Graph 1.5
Interpretation
The above graph represents the returns of ICICI Income Fund. It shows that there is continuous
rise and fall In Net Asset Value. If we see the table the monthly mean is 0.34 with price
variation of 0.65 and risk factor being 0.81. Thus it can be said that risk is very high when
compared to returns.
45
Returns, Variance and Standard Deviation of ICICI Income Funds for Dec-2013
2.00
1.50
1.00
0.50
0.00 Series1
-0.50 1 3 5 7 9 11 13 15 17 19
-1.00
-1.50
-2.00
Graph 1.6
Interpretation
The above graph represents the returns of ICICI Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.11 with price
variation of 0.59 and risk factor being 0.77 thus it can be said that risk is very high when
compared to returns.
46
Returns, Variance and Standard Deviation of KOTAK Income Funds for July-13
2.50
2.00
1.50
1.00
0.50
0.00 Series1
-0.50 1 3 5 7 9 11 13 15 17 19
-1.00
-1.50
-2.00
-2.50
Graph1.7
Interpretation
The above graph represents the returns of KOTAK Income Fund. It shows that there is
continuous rise and fall in Net Asset Value. If we see the table the monthly mean is 0.09 with
Price variation of 1.12 and risk factor being 1.06 Thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of KOTAK Income Funds for Aug-2013
47
SN Date NAV Returns(X) 2 SD
1 1-Aug-13 27.5 -0.79 -0.26 0.07
2 2-Aug-13 27.7 0.73 1.27 1.60
3 3-Aug-13 27.86 0.58 1.12 1.24
4 6-Aug-13 27.86 0.00 0.54 0.29
5 7-Aug-13 28.06 0.72 1.26 1.58
6 8-Aug-13 27.98 -0.29 0.25 0.06
7 9-Aug-13 27.49 -1.75 -1.21 1.47
8 10-Aug-13 26.31 -4.29 -3.75 14.10
9 13-Aug-13 26.11 -0.76 -0.22 0.05
10 14-Aug-13 26.04 -0.27 0.27 0.07
11 17-Aug-13 26.77 2.80 3.34 11.16
12 21-Aug-13 26.9 0.49 1.02 1.05
13 22-Aug-13 26.67 -0.86 -0.32 0.10
14 23-Aug-13 26.79 0.45 0.99 0.98
15 26-Aug-13 26.43 -1.34 -0.81 0.65
16 27-Aug-13 25.75 -2.57 -2.03 4.14
17 28-Aug-13 25.79 0.16 0.69 0.48
18 29-Aug-13 25.81 0.08 0.62 0.38
19 31-Aug-13 24.96 -3.29 -2.76 7.59
Mean -0.54 Variance 2.48 1.57
Table 1.8
Source: The data is collected from the Data base of the HDFC Securities Ltd
4.00
3.00
2.00
1.00
0.00
Series1
-1.00 1 3 5 7 9 11 13 15 17 19
-2.00
-3.00
-4.00
-5.00
Graph 1.8
Interpretation
The above graph represents the returns of KOTAK Income Fund. It shows that there is
continuous rise and fall in Net Asset Value. If we see the table the monthly mean is -0.54 with
price variation of 2.48 and risk factor being 1.57. Thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of KOTAK Income Funds for Sep-2013
48
SN Date NAV Returns(X) 2
SD
1 3-Sep-13 25.06 0.40 0.42 0.18
2 4-Sep-13 24.49 -2.27 -2.25 5.07
3 5-Sep-13 23.29 -4.90 -4.88 23.78
4 6-Sep-13 23.73 1.89 1.91 3.66
5 7-Sep-13 23.35 -1.60 -1.58 2.49
6 9-Sep-13 24.17 3.51 3.53 12.49
7 10-Sep-13 23.97 -0.83 -0.80 0.65
8 11-Sep-13 24.27 1.25 1.27 1.62
9 12-Sep-13 24.67 1.65 1.67 2.79
10 13-Sep-13 24.05 -2.51 -2.49 6.20
11 14-Sep-13 24.23 0.75 0.77 0.60
12 17-Sep-13 24.05 -0.74 -0.72 0.52
13 18-Sep-13 24.36 1.29 1.31 1.72
14 20-Sep-13 24.64 1.15 1.17 1.37
15 21-Sep-13 24.85 0.85 0.88 0.77
16 24-Sep-13 25.41 2.25 2.28 5.18
17 25-Sep-13 25.44 0.12 0.14 0.02
18 26-Sep-13 25.19 -0.98 -0.96 0.92
19 28-Sep-13 24.76 -1.71 -1.68 2.84
Mean -0.02 Variance 3.84 1.96
Table 1.9
Source: The data is collected from the Data base of the HDFC Securities Ltd
4.00
2.00
0.00
1 3 5 7 9 11 13 15 17 19 Series1
-2.00
-4.00
-6.00
Graph 1.9
Interpretation
The above graph represents the returns of KOTAK Income Fund. It shows that there is
continuous rise and fall in Net Asset Value. If we see the table the monthly mean is -0.02 with
price variation of 3.84 and risk factor being 1.96 Thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of KOTAK Income Funds for Oct-2013
49
SN Date NAV Returns(X) 2 SD
1 2-Oct-13 24.07 -2.79 -3.26 10.64
2 3-Oct-13 24.26 0.79 0.31 0.10
3 4-Oct-13 24.39 0.54 0.06 0.00
4 5-Oct-13 24.65 1.07 0.59 0.35
5 8-Oct-13 25.29 2.60 2.12 4.50
6 10-Oct-13 25.41 0.47 0.00 0.00
7 11-Oct-13 25.43 0.08 -0.40 0.16
8 12-Oct-13 25.3 -0.51 -0.99 0.97
9 15-Oct-13 26.01 2.81 2.33 5.44
10 16-Oct-13 26.55 2.08 1.60 2.56
11 17-Oct-13 26.23 -1.21 -1.68 2.82
12 18-Oct-13 26.24 0.04 -0.44 0.19
13 19-Oct-13 26.33 0.34 -0.13 0.02
14 22-Oct-13 26.91 2.20 1.73 2.99
15 23-Oct-13 26.89 -0.07 -0.55 0.30
16 24-Oct-13 27.43 2.01 1.53 2.35
17 25-Oct-13 27.59 0.58 0.11 0.01
18 26-Oct-13 27.55 -0.14 -0.62 0.38
19 29-Oct-13 27.04 -1.85 -2.33 5.41
Mean 0.47 Variance 2.06 1.44
Table 1.10
Source: The data is collected from the Data base of the HDFC Securities Ltd
4.00
3.00
2.00
1.00
0.00 Series1
-1.00 1 3 5 7 9 11 13 15 17 19
-2.00
-3.00
-4.00
Graph 1.10
Interpretation
The above graph represents the returns of KOTAK Income Fund. It shows that there is
continuous rise and fall in Net Asset Value. If we see the table the monthly mean is 0.47 with
price variation of 2.06 and risk factor being 1.44 Thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of KOTAK Income Funds for Nov-2013
50
SN Date NAV Returns(X) 2 SD
1 1-Nov-13 27.59 2.03 1.55 2.41
2 2-Nov-13 27.35 -0.87 -1.35 1.82
3 5-Nov-13 27.19 -0.59 -1.07 1.13
4 6-Nov-13 26.99 -0.74 -1.22 1.48
5 8-Nov-13 27.26 1.00 0.52 0.27
6 9-Nov-13 27.15 -0.40 -0.88 0.78
7 12-Nov-13 27.33 0.66 0.18 0.03
8 13-Nov-13 27.77 1.61 1.13 1.28
9 15-Nov-13 27.9 0.47 -0.01 0.00
10 16-Nov-13 28.59 2.47 1.99 3.97
11 19-Nov-13 28.94 1.22 0.74 0.55
12 20-Nov-13 28.94 0.00 -0.48 0.23
13 21-Nov-13 29.24 1.04 0.56 0.31
14 22-Nov-13 29.36 0.41 -0.07 0.00
15 23-Nov-13 29.07 -0.99 -1.47 2.16
16 26-Nov-13 28.83 -0.83 -1.31 1.71
17 27-Nov-13 29.04 0.73 0.25 0.06
18 29-Nov-13 29.38 1.17 0.69 0.48
19 30-Nov-13 29.59 0.71 0.23 0.05
Mean 0.48 Variance 0.99 0.99
Table 1.11
Source: The data is collected from the Data base of the HDFC Securities Ltd
3.00
2.50
2.00
1.50
1.00
Series1
0.50
0.00
-0.50 1 3 5 7 9 11 13 15 17 19
-1.00
-1.50
Graph 1.11
Interpretation
The above graph represents the returns of KOTAK Income Fund. It shows that there is
continuous rise and fall in Net Asset Value. If we see the table the monthly mean is 0.48 with
Price variation of 0.99 and risk factor being 0.99 thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of KOTAK Income Funds for Dec-2013
51
SN Date NAV Returns(X) 2 SD
1 3-Dec-13 29.7 0.37 0.24 0.06
2 4-Dec-13 29.49 -0.71 -0.84 0.71
3 5-Dec-13 29.62 0.44 0.31 0.09
4 6-Dec-13 28.87 -2.53 -2.67 7.11
5 7-Dec-13 28.62 -0.87 -1.00 1.00
6 10-Dec-13 28.35 -0.94 -1.08 1.16
7 11-Dec-13 28.42 0.25 0.11 0.01
8 12-Dec-13 28.19 -0.81 -0.94 0.89
9 13-Dec-13 28.08 -0.39 -0.52 0.28
10 14-Dec-13 28.71 2.24 2.11 4.45
11 17-Dec-13 28.75 0.14 0.00 0.00
12 18-Dec-13 28.67 -0.28 -0.41 0.17
13 19-Dec-13 29.18 1.78 1.64 2.70
14 20-Dec-13 29.69 1.75 1.61 2.60
15 21-Dec-13 30.04 1.18 1.04 1.09
16 24-Dec-13 30.12 0.27 0.13 0.02
17 26-Dec-13 30.21 0.30 0.16 0.03
18 28-Dec-13 30.4 0.63 0.49 0.24
19 31-Dec-13 30.32 -0.26 -0.40 0.16
Mean 0.13 Variance 1.20 1.09
Table 1.12
Source: The data is collected from the Data base of the HDFC Securities Ltd
3.00
2.00
1.00
0.00 Series1
1 3 5 7 9 11 13 15 17 19
-1.00
-2.00
-3.00
Graph 1.12
Interpretation
The above graph represents the returns of KOTAK Income Fund. It shows that there is
continuous rise and fall in Net Asset Value. If we see the table the monthly mean is 0.13 with
price variation of 1.20 and risk factor being 1.09 Thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of TATA Income Funds for July-2013
52
1 2-July-13 11.1 0.91 0.75 0.57
2 3-July-13 11.22 1.08 0.93 0.86
3 4-July-13 11.19 -0.27 -0.42 0.18
4 5-July-13 11.13 -0.54 -0.69 0.48
5 6-July-13 11.03 -0.90 -1.05 1.11
6 9-July-13 10.91 -1.09 -1.24 1.54
7 10-July-13 10.81 -0.92 -1.07 1.15
8 11-July-13 10.92 1.02 0.86 0.75
9 12-July-13 11.05 1.19 1.04 1.07
10 13-July-13 11.12 0.63 0.48 0.23
11 16-July-13 11.15 0.27 0.12 0.01
12 17-July-13 11.23 0.72 0.56 0.32
13 18-July-13 11.33 0.89 0.74 0.54
14 19-July-13 11.28 -0.44 -0.60 0.35
15 20-July-13 11.33 0.44 0.29 0.08
16 23-July-13 11.17 -1.41 -1.57 2.45
17 24-July-13 11.24 0.63 0.47 0.22
18 25-July-13 11.32 0.71 0.56 0.31
19 29-July-13 11.32 0.00 -0.15 0.02
Mean 0.15 Variance 0.64 0.80
Table 1.13
Source: The data is collected from the Data base of the HDFC Securities Ltd
1.50
1.00
0.50
0.00
Series1
-0.50 1 3 5 7 9 11 13 15 17 19
-1.00
-1.50
-2.00
Graph 1.13
Interpretation
The above graph represents the returns of TATA Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.15 with price
variation of 0.64 and risk factor being 0.80 thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of TATA Income Funds for Aug-2013
53
1 1-Aug-13 11.32 0.00 0.48 0.23
2 2-Aug-13 11.47 1.33 1.80 3.26
3 3-Aug-13 11.49 0.17 0.65 0.43
4 6-Aug-13 11.44 -0.44 0.04 0.00
5 7-Aug-13 11.53 0.79 1.27 1.60
6 8-Aug-13 11.51 -0.17 0.31 0.09
7 9-Aug-13 11.28 -2.00 -1.52 2.31
8 10-Aug-13 10.87 -3.63 -3.16 9.96
9 13-Aug-13 10.82 -0.46 0.02 0.00
10 14-Aug-13 10.83 0.09 0.57 0.33
11 17-Aug-13 11.1 2.49 2.97 8.83
12 21-Aug-13 11.12 0.18 0.66 0.43
13 22-Aug-13 11.06 -0.54 -0.06 0.00
14 23-Aug-13 11 -0.54 -0.06 0.00
15 26-Aug-13 10.91 -0.82 -0.34 0.11
16 27-Aug-13 10.7 -1.92 -1.45 2.09
17 28-Aug-13 10.77 0.65 1.13 1.28
18 29-Aug-13 10.74 -0.28 0.20 0.04
19 31-Aug-13 10.31 -4.00 -3.52 12.42
Mean -0.48 Variance 2.29 1.51
Table 1.14
Source: The data is collected from the Data base of the HDFC Securities Ltd
3.00
2.00
1.00
0.00
-1.00 1 3 5 7 9 11 13 15 17 19 Series1
-2.00
-3.00
-4.00
-5.00
Graph 1.14
Interpretation
The above graph represents the returns of TATA Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is -0.48 with price
variation of 2.29 and risk factor being 1.51 thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of TATA Income Funds for Sep-2013
54
3 5-Sep-13 9.94 -3.87 -3.86 14.93
4 6-Sep-13 9.98 0.40 0.41 0.17
5 7-Sep-13 9.84 -1.40 -1.40 1.96
6 9-Sep-13 10.1 2.64 2.65 7.00
7 10-Sep-13 10.06 -0.40 -0.39 0.15
8 11-Sep-13 10.07 0.10 0.10 0.01
9 12-Sep-13 10.19 1.19 1.20 1.43
10 13-Sep-13 9.99 -1.96 -1.96 3.84
11 14-Sep-13 10.02 0.30 0.30 0.09
12 17-Sep-13 9.91 -1.10 -1.09 1.20
13 18-Sep-13 10.02 1.11 1.11 1.24
14 20-Sep-13 10.12 1.00 1.00 1.00
15 21-Sep-12 10.21 0.89 0.89 0.80
16 24-Sep-13 10.4 1.86 1.86 3.48
17 25-Sep-13 10.49 0.87 0.87 0.76
18 26-Sep-13 10.43 -0.57 -0.57 0.32
19 28-Sep-13 10.28 -1.44 -1.43 2.06
Mean 0.00 Variance 2.26 1.50
Table 1.15
Source: The data is collected from the Data base of the HDFC Securities Ltd
3.00
2.00
1.00
0.00
-1.00 1 3 5 7 9 11 13 15 17 19 Series1
-2.00
-3.00
-4.00
-5.00
Graph 1.15
Interpretation
The above graph represents the returns of TATA Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.00 with price
variation of 2.26 and risk factor being 1.50 thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of TATA Income Funds for Oct-2013
55
4 5-Oct-13 10.18 0.89 0.58 0.33
5 8-Oct-13 10.4 2.16 1.85 3.41
6 10-Oct-13 10.48 0.77 0.45 0.21
7 11-Oct-13 10.56 0.76 0.45 0.20
8 12-Oct-13 10.54 -0.19 -0.50 0.25
9 15-Oct-13 10.72 1.71 1.39 1.94
10 16-Oct-13 10.83 1.03 0.71 0.51
11 17-Oct-13 10.79 -0.37 -0.68 0.47
12 18-Oct-13 10.79 0.00 -0.31 0.10
13 19-Oct-13 10.81 0.19 -0.13 0.02
14 22-Oct-13 10.88 0.65 0.33 0.11
15 23-Oct-13 10.85 -0.28 -0.59 0.35
16 24-Oct-13 11.00 1.38 1.07 1.14
17 25-Oct-13 11.09 0.82 0.50 0.25
18 26-Oct-13 11.01 -0.72 -1.04 1.07
19 29-Oct-13 10.9 -1.00 -1.31 1.73
Mean 0.31 Variance 1.19 1.09
Table 1.16
Source: The data is collected from the Data base of the HDFC Securities Ltd
3.00
2.00
1.00
0.00
Series1
-1.00 1 3 5 7 9 11 13 15 17 19
-2.00
-3.00
-4.00
Graph 1.16
Interpretation
The above graph represents the returns of TATA Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.31 with price
variation of 1.19 and risk factor being 1.09 thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of TATA Income Funds for Nov-2013
56
4 6-Nov-13 11.18 -0.80 -1.34 1.81
5 8-Nov-13 11.26 0.72 0.17 0.03
6 9-Nov-13 11.34 0.71 0.16 0.03
7 12-Nov-13 11.41 0.62 0.07 0.01
8 13-Nov-13 11.56 1.31 0.77 0.59
9 15-Nov-13 11.53 -0.26 -0.81 0.65
10 16-Nov-13 11.68 1.30 0.76 0.57
11 19-Nov-13 11.75 0.60 0.05 0.00
12 20-Nov-13 11.76 0.09 -0.46 0.21
13 21-Nov-13 11.86 0.85 0.30 0.09
14 22-Nov-13 11.92 0.51 -0.04 0.00
15 23-Nov-13 11.91 -0.08 -0.63 0.40
16 26-Nov-13 11.84 -0.59 -1.13 1.28
17 27-Nov-13 11.9 0.51 -0.04 0.00
18 29-Nov-13 12 0.84 0.29 0.09
19 30-Nov-13 12.08 0.67 0.12 0.01
Mean 0.55 Variance 0.64 0.80
Table 1.17
Source: The data is collected from the annual reports of the HDFC Securities Ltd
.
GRAPHICAL REPRESENTATION OF RETURNS
OF TATA INCOME FUND FOR THE
MONTH OF NOV-2013
3.50
3.00
2.50
2.00
1.50
Series1
1.00
0.50
0.00
-0.50 1 3 5 7 9 11 13 15 17 19
-1.00
Graph1.17
Interpretation
The above graph represents the returns of TATA Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.55 with price
variation of 0.64 and risk factor being 0.80 thus it can be said that risk is very high when
compared to returns.
Returns, Variance and Standard Deviation of TATA Income Funds for Dec-2013
57
5 7-Dec-13 11.97 -0.08 -0.16 0.03
6 10-Dec-13 11.87 -0.84 -0.91 0.83
7 11-Dec-13 11.85 -0.17 -0.24 0.06
8 12-Dec-13 11.73 -1.01 -1.09 1.19
9 13-Dec-13 11.65 -0.68 -0.76 0.58
10 14-Dec-13 11.82 1.46 1.38 1.91
11 17-Dec-13 11.9 0.68 0.60 0.36
12 18-Dec-13 11.84 -0.50 -0.58 0.34
13 19-Dec-13 11.95 0.93 0.85 0.73
14 20-Dec-13 12.11 1.34 1.26 1.59
15 21-Dec-13 12.17 0.50 0.42 0.18
16 24-Dec-13 12.19 0.16 0.09 0.01
17 26-Dec-13 12.23 0.33 0.25 0.06
18 28-Dec-13 12.23 0.00 -0.08 0.01
19 31-Dec-13 12.25 0.16 0.09 0.01
Mean 0.08 Variance 0.57 0.75
Table 1.18
Source: The data is collected from the Data base of the HDFC Securities Ltd
2.00
1.50
1.00
0.50
Series1
0.00
-0.50 1 3 5 7 9 11 13 15 17
-1.00
-1.50
Graph 1.18
Interpretation
The above graph represents the returns of TATA Income Fund. It shows that there is continuous
rise and fall in Net Asset Value. If we see the table the monthly mean is 0.08 with price
variation of 0.57 and risk factor being 0.75 thus it can be said that risk is very high when
compared to returns.
Correlation of Returns between KOTAK Income Fund and TATA Income Fund
from July – 13 to December – 13
58
NOV 0.48 0.55 0.38 0.44 0.17 0.14 0.20
DEC 0.13 0.08 0.03 -0.02 0.00 0.00 0.00
Mean 0.10 0.10 ∑X=0.00 ∑Y=0.00 ∑XY=0.63 ∑X2=0.71 ∑Y2=0.59
Table 1.19
CORRELATION
∑XY 0.63
2 2
∑X ∑Y 0.42 0.65
CORRELATION( r ) 0.97
0.60
0.40
0.20
KOT(x)
0.00
TATA(y)
-0.20 1 2 3 4 5 6
-0.40
-0.60
Graph 1.19
Interpretation
The above graph represents the correlation between KOTAK Income Fund and TATA Income
Fund. It reveals that there exists a positive correlation between both the companies in the half
of the year. Here the correlation lies below 1 which indicates a good correlation, thus we can
say that both the companies are going according to market conditions.
Correlation of Returns between KOTAK Income Fund & ICICI Income Fund
from July – 13 to December – 13
59
NOV 0.48 0.34 0.38 0.20 0.07 0.14 0.04
DEC 0.13 0.11 0.03 -0.03 0.00 0.00 0.00
MEAN 0.10 0.14 ∑X=0.00 ∑Y=0.00 ∑XY=0.51 ∑X2=0.71 ∑Y2=0.48
Table 1.20
CORRELATION
∑XY 0.51
CORRELATION( r ) 0.87
0.60
0.40
0.20
Series1
0.00
Series2
-0.20 1 2 3 4 5 6
-0.40
-0.60
Graph 1.20
Interpretation
The above graph represents the correlation between KOTAK Income Fund and ICICI Income
Fun. It reveals that there exists a positive correlation between both the companies in the half of
the year. Here the correlation lies below 1 which indicates a good correlation, thus we can say
Correlation of Returns between ICICI Income Fund& TATA Income Fund from
July – 13 to December – 13
60
OCT 0.37 0.31 0.22 0.21 0.05 0.05 0.05
NOV 0.34 0.55 0.20 0.44 0.09 0.04 0.20
DEC 0.11 0.08 -0.03 -0.02 0.00 0.00 0.00
MEAN 0.14 0.10 ∑X=0 ∑Y=0 ∑XY=0.47 ∑X2=0.48 ∑Y2=0.59
Table 1.21
CORRELATION
∑XY 0.47
CORRELATION( r ) 0.89
1.00
0.50
Series1
0.00
Series2
-0.50 1 2 3 4 5 6
-1.00
Graph 1.21
Interpretation
The above graph represents the correlation between ICICI Income Fund and TATA Income
Fund. It reveals that there exists a positive correlation between both the companies in the first
of the year. Here the correlation lies below 1 which indicates a good correlation, thus we can
say that both the companies are going according to market conditions.
Findings
The Correlation between ICICI Income Fund and KOTAK Income Fund
61
It reveals that there exists a positive correlation between both the companies in the half
of the year. Here the correlation is 0.87 which indicates that both the companies are
The correlation between KOTAK Income Fund and TATA Income Fund
It reveals that there exists a positive correlation between both the companies in the half
of the year. Here the correlation is 0.97 which indicates that both the companies behave
The correlation between ICICI Income Fund and TATA Income Fund
It reveals that there exists a positive correlation between both the companies in the half
of the year. Here the correlation is 0.89 which indicates that both the companies are
Suggestions
Investor has to know the security returns are co-related to each other.
62
The investor has to maintain a portfolio of diversified sector stocks rather than investing
If the market is not doing well, investor should not panic, rather wait for sometimes
In order to enjoy more returns, Investor should invest in more risky securities
A risk-averse investor should invest in less risky securities and enjoy normal returns.
Conclusion
In this project work it is seen how the securities can be constructed as a portfolio .By using
Markowitz theory a portfolio is constructed and the returns and risks are calculated. The entire
63
project work is done to identify the best portfolio and it is found the results are satisfactory.
However it is very important for an investor to identify the risk associated with the returns of
various securities. The investor should construct a portfolio where stocks are negatively
correlated. The investor should select stocks from different sectors rather than investing all
64