Professional Documents
Culture Documents
ON
AN EMPIRICAL STUDY
OF PORTFOLIO MANAGEMENT
USING FUTURES PROVIDED BY
RELIANCE MONEY
In the
Faculty of Management
Graphic Era Institute of Management
2
ACKNOWLEDGEMENT
Anandeep Kuar
BBA V - Finance
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EXECUTIVE SUMMARY
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TABLE OF CONTENT
Page No
A. Certification. 1
B. Acknowledgment. 2
C. Executive Summary. 3
D. Table of Contents. 4
E. Abbreviations. 5
G. Company profile 16
H. Literature Review 33
I. Research Methodology 40
J. Findings 51
K. Glossary 53
L. Questionnaire 61
M. Bibliography 63
5
ABBREVIATIONS
DP Depository Participant.
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INTRODUCTION
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INTRODUCTION
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Flexibility: Portfolio Manager plan savings of his clients
according to their need and preferences. But sometimes, portfolio
managers can invest client's money according to his preference
because they know the market very well than his client. It is his
client's duty to provide him a level of flexibility so that he can
manage the investment with full efficiency and effectiveness.
PAYMENT CRITERIA:
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There are types of payment criteria offered by portfolio
managers to their client, such as:
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THE BASICS OF FUTURES CONTRACTS
Any time a futures contract is set into motion, there are two
parties involved: the buyer and the seller. As such, both the buyer
and the seller are obligated to fulfill their end of the bargain.
Therefore, even if the futures contract no longer seems like a
good buy when the delivery date rolls around, the buyer must still
complete the purchase. Similarly, if the seller decides that he or
she would like to hang onto the futures contract, he or she does
not have this option.
If the person holding the futures contract wishes to get out of the
deal before the settlement date has been reached, he or she does
have a few available options. One option the holder has is to
offset the position by selling a long position. The other option is to
purchase a short position. By doing so, the holder essentially
closes out the futures position and is free from contract
obligation.
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Futures are liquid assets and this liquidity is made possible by the
fact that it is highly standardized. There are several different
methods by which the futures can remain standardized. Some of
these include specifying:
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FUTURE CONTRACTS
INTRODUCTION
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OBJECTIVE OF THE STUDY
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Company profile
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ABOUT RELIANCE CAPITAL & RELIANCE
MONEY
Reliance Capital‘s PMS has been sponsored by Reliance Capital
Ltd (RCL) which, in turn, is promoted by Reliance Industries Ltd.
(RIL). It is one of India’s largest private sector enterprises. RIL has
a net worth of Rs 40,483 crore as on March 31, 2005, and
currently has a large family of shareholders. RCL is a non-banking
finance company engaged in leasing, investment and other fund-
based activities. Various products of
Reliance Capital PMS offered to Deutsche
Bank customers are:
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track record. Trading strategies with entry - exit points of view.
Take an informed decision.
INVESTMENT APPROACH
INVESTMENT PROCESS
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INVESTMENT OPTIONS
Absolute Freedom
Large-Caps
A relatively protective investment option with investments
predominantly in large-cap stocks. This ensures liquidity and
lower impact costs leading to a more stable portfolio.
Mid-Caps/Small-Caps
A relatively aggressive option that helps to harness the potential
of companies in the mid-cap/small-cap segment. This option
attempts to discover companies with the potential of both
earnings and multiples to rise. In all the options, portfolios are
constructed by concentrating on select investment themes. We
also use derivatives as an investment tool.
SERVICES
RISK FACTORS
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that past performances indicated in earlier Schemes/options
will be repeated. Investors are not being offered any
guaranteed or indicative returns through any of the
Schemes.
o The names of the Schemes/option do not in any manner
indicate their prospects or returns. The performance in the
equity Schemes/options may be adversely affected by the
performance of individual companies’ changes in the market
place and industry specific and macro economic factors.
o Technology stocks and some of the investments in niche
sectors run the risk of volatility, high valuation, obsolescence
and low liquidity.
o Risk attached with the use of derivatives.
The portfolio manager may use derivative products as may
be permitted by SEBI from time to time. As and when the
schemes trade in the derivatives market there are risk
factors and issues concerning the use of derivatives that
investors should understand. Derivative products are
specialized instruments that require investment techniques
and risk analyses different from those associated with stocks
and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also
of the derivative itself. Derivatives require maintenance of
adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to the
portfolio and other related capabilities. There is the
possibility that a loss may be sustained by the portfolio as a
result of the failure of another party (usually referred to as
the “counter party”) to comply with the terms of the
derivatives contract. Other risks in using derivatives include
market risk, valuation risk, liquidity risk and basis risk. Also,
it is to be noted that the market for derivative instruments is
nascent in India.
o In the case of stock lending, risks relate to the defaults from
counterparties with regard to securities lent and the
corporate benefits accruing thereon, inadequacy of the
collateral and settlement risks. The Portfolio Manager is not
responsible or liable for any loss resulting from the
operations of the schemes/options.
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o The Portfolio Manager may invest in the shares, units of
mutual funds, debt, deposits and other financial instruments
of group companies.
o Each portfolio will be exposed to various risks depending on
the investment objective, investment strategy and the asset
allocation. The investment objective, investment strategy
and the asset allocation may differ from client to client.
However, generally, highly concentrated portfolios with
lesser number of stocks generally will be more volatile than
a portfolio with a larger number of stocks. Portfolios with
higher allocation to equities will be subject to higher
volatility than portfolios with low allocation to equities.
o Risk arising out of non-diversification, if any Diversified
portfolios (allocated across companies and broad sectors)
generally tend to be less volatile than non-diversified
portfolios
o The Portfolio Manager has previous experience / track record
of about one year since August 2004 in providing Portfolio
Management Services by virtue of having commenced its
activities after obtaining no-objection from the SEBI -
Investment Management Department vide letter no.
IMD/PSP/17209/2004 dated August 5, 2004.
• They will deal with you with the utmost transparency. They
will send you regular portfolio statements and updates. You
will also have access to our web-site which is designed to
give all the information you need about your investments at
the click of a mouse.
Investment Philosophy
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reasonable valuations. Own companies that can generate long-
term, sustainable earnings, managed by qualified professionals
capable of executing a well conceived strategic plan.
Investment Process
Portfolio Construction
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FEATURES & FEE STRUCTURE
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OTHER PRODUCTS OF RELIANCE MONEY
EQUITY
DERIVATIV COMMODIT
ES Y
PRODUCT
S
OFFERED
MUTUAL
FOREX
FUNDS
IPOs
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EQUITY
DERIVATIVES
MUTUAL FUNDS
What is it about investing that irks you most? Is it the fact that it
is time-consuming since it involves researching the market for
investment products and then proceeding with the paperwork
involved? Or could it be that once you have made your
investments, you cannot find the time to monitor them? Like most
of us, do you dread a situation wherein you need your money all
of a sudden and have no access to it or have to run from pillar to
post to get it back? Do you sometimes hesitate to invest because
you are unsure about how well-regulated investment products
are? Is your approach to investing constrained by the fact that
you possess limited investment capital, which does not allow you
to achieve the diversity that you desire?
If these are some of the reasons that make you feel disinclined to
undertake an investment exercise, consider mutual funds. This
investment vehicle successfully addresses the above concerns
and offers other benefits too. Let’s take a look at what exactly a
mutual fund is and how it functions. A mutual fund is an entity,
which offers a number of investment schemes with different
investment objectives. An investor interested in investing in these
schemes needs to assess which scheme has an investment
objective that matches his, to make his selection from among the
available schemes.
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offering units at Rs 10 per unit, he will receive 500 units in the
scheme (Rs 5,000 / Rs 10).
COMMODITIES
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• Plastics & Petrochemicals: Such as Polypropylene (PP), High
Density Polyethylene (HDPE)
• Agricultural Commodities: These are varied and are
classified in sub-groups such as:
Others - like Guar Seed, Guar Gum, Sugar, Gur (Jaggery), Mentha
Oil, Potato, etc.
FOREX
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An exchange rate is just a price. The price of a liter of milk, for
example, is Indian Rs 20, or 20 INR/milk, using the above
exchange rate market notation. When we price exchange rates,
the denominator refers specifically to one unit of a currency.
Like in any other market, demand and supply determine the price
of a currency. At any point in time, in a given country, the
exchange rate is determined by the interaction of the demand for
foreign currency and the corresponding supply of foreign
currency. Thus, the exchange rate is an equilibrium price
determined by supply and demand considerations.
IPO
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SOMETHING FOR THE CUSTOMERS
Reliance Money has divided its customers in three parts on the
basis of their experience in the share market. It has differentiated
itself according to their customers. Following are the different
characteristics:
BEGINNERS
Here you will find up-to-date information and expert guidance
that will help you invest online. Start small and grow steadily. You
will be amazed to know how easy it can be.
MIDDLERS
If you have some experience investing online, you’ll find us a
pleasant surprise. For simpler, safer and smarter investing, start
here.
EXPERTS
If you are an expert in investing online, you will find this a
completely new experience. Use the advantages we offer to get
more out of your money.
Literature Review
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34
Reliance Money to launch PMS for retail
investors
Our Bureau
Kolkata, Dec. 20
Anil Dhirubhai Ambani group outfit Reliance Money is launching a
portfolio management scheme (PMS) for retail investors. Mr.
Sudip Bandyopadhyay, CEO of Reliance Money, said here today
that the proposed PMS would have an entry threshold of Rs 5 lakh
and it would charge a fee only if annual return was 8 per cent or
more.
Reliance Money is also offering a limited period free trading
account in West Bengal to customers, who open demat account
with it at a one-time cost of Rs 750. The offer entails Rs 500
trading charge waiver for a maximum traded value of Rs 5 lakh
for the first year. For higher trading limits, graded charges would
be placed, he added.
Reliance money, in a deviation from the broking industry
practices of charging brokerages based on each transaction, has
already introduced a flat fee structure for trading in equities and
commodities on its electronic platform.
It has recently tied up with an NGO for providing trading platform
in 10 districts of West Bengal, Andhra Pradesh, Orissa and Bihar.
The NGO, the Forum for Integrated Development and Research
(FIDR), runs a rural entrepreneurship programme in these States
through one-man one-village training initiative.
Under this model, the trained man is provided with village-level
electronic platform called ‘Gyan O Shoochna Kendra’ for
imparting training in computer skills.
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Dynamic Portfolio Analysis
Richard C. Grinold
THE JOURNAL OF PORTFOLIO MANAGEMENT
Fall 2007
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first priority (you have plenty of years ahead of you for that) you
can take on a greater amount of risk than your parents
© James Brumley
Source: ChilliBreeze
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But why should you opt for PMS instead of a mutual fund? Here
are a few aspects on which portfolio managers say they score
over the standardised products offered by mutual funds:
Timing: Have you ever kicked yourself for switching your entire
portfolio into equities just before they tanked? If you have, you
probably need help with regard to timing of investments. Once
you hire a portfolio manager, you can expect assistance on when
you should be investing more money into equities and when you
should be bailing out. A portfolio manager may also switch a
portion of your portfolio into cash, if he perceives a big risk to
stock prices. The focus is on preserving value.
Flexibility: You are bullish on FMCG stocks, but find that equity
funds have marginal exposures to the sector. In a PMS, you can
expect the portfolio manager to accommodate your sector
preferences when he invests. But don't expect to completely
dictate what stocks or sectors your portfolio manager will buy for
you, as he will be the best judge of that.
Okay, you have fallen for the sales pitch and entrusted your
money to a PMS. What can you now expect from this service?
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DISCLOSURE DOCUMENT
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RESEARCH METHODOLOGY
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RESEARCH METHODOLOGY
RESEARCH DESIGN
Research design is a master plan or a model for the collection
of formal information. Descriptive type of research has been
used it including interviews. The major purpose of descriptive
research is to describe the state of affairs.
DATA COLLECTION
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Primary data
• Primary data is collected through the interview of customers
of Reliance Money. Questionnaire filled by them is used.
Interview of employees of the company is also taken.
Secondary data
DATA INTERPRETATION
Data interpretation has been done by using chi square. Chi square
allows us to test whether the difference between the proportions
representing more than two samples is significant or not. It is
used to determine whether the two attributes according to which
a population is categorized are independent of each other or not.
SAMPLING
HYPOTHESIS TESTING:
LEVEL OF SIGNIFICANCE:
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LEVEL OF SIGNIFICANCE: 5% Level of significance has been
taken for the study
HYPOTHESIS TESTING
NOT 17 10 24 30
SATISFIED
TOTAL 50 50 50 50
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TABLE
33 30 3 9 .3
26 30 -4 16 .533
20 30 -10 100 3.333
10 20 -10 100 5
17 20 -3 9 .45
24 20 4 16 .8
30 20 10 100 5
Total 18.746
= (2-1) (4-1)
=3
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According to level of significance (5%) and degree of freedom (3)
chi square statistic is 7.815
Since the sample chi square statistic (18.746) does not fall in the
acceptance region (7.815) we reject the null hypothesis.
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Frequently asked questions
Q1. What is the difference between a discretionary and a non-discretionary Portfolio
Management Services?
Q3. Do you guarantee the initial corpus and any ‘return’ thereon?
Q4. Is there a maximum limit for investing in the Portfolio Management Service?
Ans. There is no upper limit on the amount you can invest in the
PMS.
Ans. The ideal time horizon for a equity portfolio is at least 12-18
months.
Q6. Does the Portfolio Management Service have any lock-in period?
Ans. No, the same form can be used for any scheme.
Ans. No, the discretion to invest primarily lies with the Portfolio
Manager with the objective to maximize your returns.
Q13. What is the paperwork and documentation needed to open a PMS account?
• Account Opening Form Q14. What is the Fee Structure for PMS?
• The Risk Disclosure
• Address Proof Q15. Can I withdraw my profit any time?
• Identity proof
Ans. Feecard
• Pan Structure:
copy
Asset Management Fess: 2.0% pa
Ans. You can terminate from PMS at any time; charges as agreed
would be applicable.
FINDINGS
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• Although prices for futures contracts in any given heating
season may exhibit a systematic bias (e.g., consistently
underestimating prices for the 2002-2003 heating season), the
patterns do not evolve in a predictable way between seasons.
This would impede attempts to use futures prices to predict
actual heating season prices based on previous patterns in the
data.
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Glossary
Active Member:
Member of the IDA in good standing.
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Alternate Registered Options Principal:
Where necessary to ensure continuous supervision, one or
more alternate registered options principals may be
approved, who will report to the DROP. This individual must
be a director, partner, or officer of the Member firm. In the
absence or incapacity of the DROP, or when trading activity
of the Member requires additional qualified persons in
connection with the supervision of the Member’s business,
this alternate may assume the authority and responsibility
of the DROP.
Branch Manager:
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An officer (trading) or salesperson who is approved to
supervise activity conducted in a branch office.
Close Supervision:
Close supervision of the registrant’s activities by a partner,
director, officer or branch manager of the firm on his or her
trading activities and dealing with clients. Written monthly
supervision reports are either retained by the Member firm
or submitted to the IDA.
Co-Branch Manager:
An officer (trading) or salesperson who is one of two or
more persons approved to share the responsibility for the
supervision of a branch.
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Association.
Director (Industry):
Director (Non-Industry):
An individual appointed to the Board of Directors who is not
employed by the Member, a subsidiary or financial
institution, or a securities dealer that is a related company
to the Member.
Industry Investor:
An individual who is actively engaged in the business of a
Member and who beneficially owns securities of the
Member.
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An individual who is approved to trade in futures, but is
prohibited from providing advice to the public and is
restricted to dealing with non-retail clients only.
Non-Industry Investor:
An individual who beneficially owns securities of the
Member, and who is not an industry investor.
Officer (Non-Trading):
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An individual approved by the IDA. Officer titles include the
chair or any vice-chair of the board of directors, the
president, any vice-president, the secretary, the assistant-
secretary, the treasurer, the assistant treasurer, the
comptroller or the general manager of a Member, or any
other person designated an officer of a Member by by-law
or similar authority, who is not approved to trade and
advise the public in Canada.
Officer (Trading):
An individual approved by the IDA. Officer titles include the
chair or any vice-chair of the board of directors, the
president, any vice-president, the secretary, the assistant-
secretary, the treasurer, the assistant treasurer, the
comptroller or the general manager of a Member, or any
other person designated an officer of a Member by by-law
or similar authority, who is approved to trade and advise
the public in Canada.
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A Partner, Director, Officer or Salesperson registered under
the Commodity Futures Act, who is approved to trade and
advise in futures contracts and futures contract options with
the public in Canada and is restricted to dealing with non-
retail clients only.
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intention to resign.
Sales Manager:
An officer (trading) or salesperson who has been approved
for directo or indirect supervisory responsibility over any
sales management personnel of a Member firm. Individuals
falling into this category would normally have supervisory
responsibility over branch managers.
Strict Supervision:
Strict supervision of the registrant’s activities by a partner,
director, officer or branch manager of the firm on his or her
trading activity and dealings with clients. This form of
supervision also requires pre-approval of orders before
entry. Written monthly supervision reports are submitted to
the Association.
Surrendered Membership:
If two Member firms amalgamate and the acquiring firm
signs an undertaking to pay any outstanding debt/liabilities
of the acquired firm, the acquired firm may surrender their
Membership rather than resign.
Suspended Member:
A Member not entitled to exercise the rights and privileges
of Membership.
Terminated Member:
A firm that has 'Resigned - Pending Approval' status is
terminated upon completion of the resignation process.
Trader – CATS:
A registered representative who is not permitted to trade or
advise clients, and whose activities are restricted to
electronic trading.
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advise clients, and whose activities are restricted to
electronic trading in commodities.
QUESTIONNAIRE
a. Wants to invest
b. Never
c. Rarely
d. Too much
a. HSBC
b. Reliance Money
c. Religare
d. ABN AMRO
a. Fully Satisfied
b. Not too much
a. Not at all
b. Not too much
c. Lots of information
a. Yes
b. No
c. Wants to get information
d. Already investing through Reliance Money
a. Yes
b. Don’t have information
c. Already invested
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Q8. According to you which of the following is the safest
way to invest in share market?
ABN AMRO
BIBLIOGRAPHY
• www.Investopedia.com
• Investor guide
• AMFI workbook
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• www.bseindia.com
• www.nseindia.com
• www.Rediffmail.com
• www.economicstimes.com
• www.google.com
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