Research Methodology of portfolio management

Introduction and statement of the problem This topic is substantially important in taking investment decision in the stock market. Portfolio management will help one in identifying those securities which will help investor to deploy his funds on those securities which will increase the return for given level of risk or which will decrease the risk for given level of investment. By using portfolio management tools like risk-return analysis, Markowitz model, sharp model here we have to identify those securities which will maximize our return on funds deployed.

Short Literature Survey Portfolio management Portfolio management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations, charities, educational establishments etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds).  Each of the investment avenues has their own risk and return. Investor plans his investment as per this risk – return profile or his preferences while managing his portfolio efficiently so as to secure the highest return for lowest possible risk. This in short is the portfolio management. Portfolio management is the process of encompassing many activities of investment in assets and securities which includes planning, supervision, timing, rationalization, etc. in selection of securities to meet investors‟ objectives. Investment management is the another word which can be used for “portfolio management”

APPLICATION OF PORTFOLIO MANAGEMENT:

Portfolio Management involves time element and time horizon. The present value of future return/cash flows by discounting is useful for share valuation and bond valuation. The investment strategy in portfolio construction should have a time horizon, say 3 to 5 year; to produce the desired results of say 20-30% return per annum. Besides portfolio management should also take into account tax benefits and investment incentives. As the returns are taken by investors net of tax payments, and there is always an element of inflation, returns net of taxation and inflation are more relevant to taxpaying investors. These are called net real rates of returns, which should be more than other returns. They should encompass risk free return plus a reasonable risk premium, depending upon the risk taken, on the instruments/assets invested.

SCOPE OF PORTFOLIO MANAGEMENT:Portfolio management is a continuous process. It is a dynamic activity. The following are the basic operations of a portfolio management. a) Monitoring the performance of portfolio by incorporating the latest market conditions. b) Identification of the investor‟s objective, constraints and preferences. c) Making an evaluation of portfolio income (comparison with targets and achievement). d) Making revision in the portfolio. e) Implementation of the strategies in tune with investment objectives.

Return: Interest, dividend or appreciation of investment is called return which is used to evaluate the performance of the investment. There can be of two types of return.

Expected return: Expected return is the anticipated return. Realized return: Realized return is actually earned income of the investors. MEANING OF RISK Risk & uncertainty are an integrate part of an investment decision. Technically „risk‟ can be defined as situation where the possible consequences of the decision that is to be taken are known. „Uncertainty‟ is generally defined to apply to situations where the probabilities cannot be estimated. However, risk & uncertainty are used interchangeably.

Types of risks 1. Systematic risk: Systematic risk is non diversifiable& is associated with the securities market as well as the economic, sociological, political, & legal considerations of prices of all securities in the economy. The affect of these factors is to put pressure on all securities in such a way that the prices of all stocks will more in the same direction.

2. Unsystematic Risk: The importance of unsystematic risk arises out of the uncertainty surrounding of particular firm or industry due to factors like labour strike, consumer preferences and management policies. These uncertainties directly affect the financing and operating environment of the firm. Unsystematic risks can owing to these considerations be said to complement the systematic risk forces.

Risk Return relationship The higher the risk taken, the higher is the return. But proper management of risk involves the right choice of investments whose risks are compensating.

Equity of venture capital funds Equity of blue chip companies

Return

Mutual funds Fixed Deposits of companies Debentures /Bonds Insurance companies/post office service GOVT. Bond Risk free Return Risk

RESEARCH DESIGN The research design of this project is descriptive research. Because, here we have to offer a solution for the problem i.e. to construct an optimum portfolio. As we are here doing our research based on secondary data which are already available and we are not needed to collect those data, so we use descriptive research design.

RESEARCH METHODOLOGY We have use secondary data for research on this topic. We have collected data for the period of January 2012 to December 2012. These data are in the form of share prices of different company and balancesheet of different companies. We have used those data in the selection of the company for investment and calculating risk and return for the same companies according to Markowitz and sharp model. The different secondary sources have been use for collection of data for prices of share and financial performance of various companies. Those are www.bseindia.com www.moneycontrol.com www.in.com

Population:- The population in this project includes all companies in the capital goods and sugar sector. Price of all these companies in the BSE is my population.

Sampling method:- The sampling method which We have used is non-probabilistic Judgmental sampling. Because, all sectors for investment are selected by researcher‟s judgment in order to invest scarce funds. And to select the companies in this sector We have use EPS (earning per share) as the performance criteria for these companies. And the companies with the more EPS are selected for further analysis in portfolio.

Data analysis:- Analysis is an important part in the project. Statistical tools We have used are mean, standard deviation, variance, co relation, regression, Beta coefficient and standard error for various securities. We have used Markowitz model and sharp model in portfolio management to decide the optimum portfolio.

TIME & BUDGET We have selected time period of January 2012 to December 2012 to collect data for our research.

REASON FOR TAKING UP THE PROJECT As we know there are many investment avenues where one can invest and one can get maximum out of their scarce fund, and shares are one of the most attractive and risky investment option that one can consider for investment. So, here by analysing risk and return in 3 sectors namely IT, banking and pharmaceutical sector. We are trying to find out risk and return in every sector and trying to find out which sector will give us maximum return. So, basically we are suggesting the investor best company to deploy their fund in the given sectors so that they can maximize their return at minimum risk.

LIMITATION OF THE PROJECT:

As We have collected prices of the share for the year 2012. So, prices of share for the different period may be different. So, decision made out of this analysis can‟t be applicable for other time period for investment.

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We have selected only 3 sector namely, information technology, banking and pharma sector. So, there may be other sectors which are more profitable than these sectors. So in reality one can select other sectors in order to maximize the return. So, practically it is not possible to do investment in only certain sector. We have to take into consideration each and every sector of economy for investment.

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And due to our lake of experience in this field, it may be possible that analysis made by me may not be 100% correct and accurate.

FURTHER SCOPE OF STUDY:One can further study in this field by selecting different sectors for investment. And one can evaluate securities using different portfolio tools for investment of scarce funds.