05-02-2013, 10:28 AM
Asset Allocation and Portfolio Construction
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INTRODUCTION:
The project entitled “asset allocation and portfolio construction” deals with the construction of an optimal portfolio on the basis of risk return evaluation and loss minimization. Two types of portfolio based on individual stocks and mutual funds are under construction. The companies are selected from NSE CNX NIFTY based on market capitalization and sector wise stocks.Three different types of portfolio construction is has been constructed according to the style of fund management namely aggressive, semi aggressive and conservative based on risk appetite of the client. The company from each sector that is bank sector, power sector, steel industry, IT sector, petro chemical sector was selected for study. The basic reason behind portfolio construction is to diversify risk. Because if an investor is exposed to a specific scrip then chances of high return as well as huge losses are equally possible. Therefore exposure across the sector is proposed because it is highly unlikely that all the sectors will simultaneously go down the drain. For example in the year (2009) IT sector gave negative returns. It was (-14.9%) were as return in capital goods was 117% likewise we have different returns across sector. Therefore suppose we take two sectors (as mentioned above) with equal weight age of 50% then over return would be 66% and we exposed our self only to IT sector we would have suffered loss.
Similarly the phenomenal return in capital goods is also not guaranteed in future. Here I have taken example of only two sectors, If we diversified our exposure across different sectors then there is possibility of losses to be reduced. while constructing portfolio it is also considered that performance of all the sectors as got cyclical effect .while constructing portfolio different aspects are looked at. They are risk appétit and return objective of client and period for which a client is willing to stay invested. Age is also consider because old people are risk adverse were as young people are aggressive.
Problem statement
Does a proper asset allocation and managing an investment through portfolio construction lead to prudent creation of wealth of a customer?
In case of asset allocation, the asset classes considered are debt, equity which includes stocks and mutual funds, gold, speculation (which includes F&O, commodities and forex), real estate, art funds and structured products.
Themes on which portfolio has been constructed are aggressive and conservative, and these themes justify their name on risk and return trade off.
For portfolio on mutual funds similar themes have been selected and different scheme were selected according to style of management , their net present value, and annual.
Portfolio construction based on asset allocation, the weight of the different asset classes like debt, equity, speculation are varied and thereby required rate of return is achieved.
OBJECTIVE OF THE STUDY:
1. To make people aware about market.
2. To review the concept, price and analysis.
3. To know the advantage and disadvantage of stock market.
4. To study and analyze the major competitors to Religare.
5. To study and analyze the problem faced by Religare
6. To have a clear understanding of as to how construction and management of equity portfolio be made.
7. To have an understand if portfolio management with specific reference to theoretical and practical aspects involved in this process.
SCOPE OF THE STUDY:
1. Study can predict the movement of stock and its prices.
2. Understanding the investor’s need and behavior in market.
3. Designing appropriate portfolio which includes Equities.
4. The study can improve the knowledge of the investors.
LIMITATION OF THE STUDY:
1. The study was restricted only to the companies that are listed in BSE index.
2. Industry is not willing to part with actual or real data base so; therefore the study is based on available secondary data and based on the historical data.
3. Due to time constraint and due to non availability of required data neither from secondary source nor from the Historical data.
4. The study also is limited by using more financial tools used for selection Securities like Sharpe ratios, trey nor since the required data is unavailable.
5. To understand the overall working of share market, the period of 60 days is not enough.
6. Moreover, very few investor and agents have detail knowledge of the study.
COMPANY PROFILE
Religare Security Limited
Religare Security Limited, is a premier integrated financial service provider and ranked among the top five in all its business segments, services over 16 million individual investors in various capacities, and provides investor services over 300 corporate, comprising the who is who of corporate India. Religare Security Limited covers the entire spectrum of financial service such as Stock Broking, Depository Participants, Distribution of Financial Products – Mutual Funds, Bonds, Fixed deposits, Equities, Insurance Broking, Commodities Broking, Personal Finance and Advisory services, Merchant Banking and Corporate Finance, Placement of Equity, IPOs, among others. Religare has a Professional Management team and ranks among the best in Technology, Operations Research of various Industrial Segments.