Being presented by: Faiza Sajjad (MBA E )

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Diversification and portfolio investment Why to use diversification?

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4. 5. 6. 7. 8.

Types of portfolio investment strategies

Need for diversified portfolio selection The 4 elements of portfolio selection How to build portfolio? Advantages and disadvantages of portfolio investment Case Study

Diversification is not putting all your money into just one type of investment. Direct investment in equity market leads to high risk. Diversification helps in averting risk by way of using diversifiable portfolio. Beneficial for all investor in this economic downtime.

A portfolio is a combination of different investment assets.

Portfolio can include any asset you own - from real items such as art and real estate, to equities, instruments and their cash and equivalents. Here, we will focus on the most liquid asset types: equities, fixedincome securities and cash and equivalents.

SECTOR

HBL Stock Fund

United Stock Advantage Fund

Pakistan Stock Market Fund

Js Large Capital Fund

NAFA Stock Fund

Pakistan Premier Fund

Atlas Stock Market Fund

IGI AKD ABL Stock Opportunity Stock Fund Fund Fund

Automobile and Parts Banks Cement Chemicals Electricity Fertilizer Fixed Line Telecommunication Non Life Insurance Oil and Gas Personal Goods

20.19 20.80 18.30 0.24 2.68 32.91 4.88

7.34 1.18 24.53 10.91 9.78

14.28 14.72 16.16 4.03 22.43 21.10 7.28

12.30 16.33 2.51 30.23 19.85

13.40 7.19 27.88 10.33 32.24 4.30

8.25 11.71 28.30 10.12

7.88 7.42 19.50 11.61 5.76 8.44

23 14.70 33 1 4.40 19 -

11.78 35.94 10.92 10.37

27.00 6.13 11.79 18.93

36.66 -

30.74 5.41

The more ways you diversify the more likely you are to reduce your risk. Diversification can be done across:
Different asset classes (cash, fixed interest, property, shares)

More than one investment in each asset class (e.g. several different
industries and companies when investing in shares) More than one type of fund and investment manager when investing in

managed funds.

There are two types of portfolio investments strategies:

Aggressive investment strategies. Conservative investment strategies.

It includes those that shoot for the highest possible return.

This strategy is most appropriate for investors who, for the sake of this potential high return, have a high risk tolerance and a longer time horizon.

Aggressive portfolios generally have a higher investment in equities.

It includes those securities which put safety at a high priority.

This strategy is most appropriate for investors who are risk averse and have a shorter time horizon. Conservative portfolios will generally consist mainly of cash and cash equivalents, or high-quality fixedincome instruments.

Investment objectives.
Investing principles.

Investing strategies.
Risk tolerance.

Determine Your Initial Target Portfolio Monetary Goal. Determine Target Percentages for Each Asset Class. Calculate the Target Amount for Each Asset Class in Both

Taxable Accounts and Retirement Accounts.

Research Potential Candidates for Financial Assets and Select the Assets Most Likely to Help You Achieve Your Goals.

Purchase the Assets and Compare the Actual Portfolio with the
Target Portfolio.

Risk Diversification and Reduction. Minimal Security Analysis. Systematic Investment Approach. Passive Investment Style.

Reduces Quality. Too Complicated. Market Risk. Below Average Returns. Bad Investment Vehicles. Lack of Focus or Attention to Your Portfolio.

Growth of equity funds is highly dependent on Size of

Portfolio and Turnover of stocks, and distrust on equity

market always affect the performance of funds. Investment in equity funds is still a best option for getting consistent return as direct investment in equity markets.

Case Study: Turkish Investment Portfolio 12.02.2013 Do you have clients who are Turkish residents and are looking for a life insurance product specific to their needs? We have prepared a case study for Turkish Investment Portfolios.

Case:
The client is a Turkish resident entrepreneur, who owns a successful and expanding local business. Over the years, he has invested a portion of the profits from the business into building a substantial investment portfolio, made up primarily of: shares in Turkish listed and non-listed companies; bonds and equivalent instruments issued by Turkish companies; and Turkish Government bonds.

He is married, with three children, who are planning to move abroad for their studies in the future.

Issue:
In view of the risks associated with his expanding business, the client is looking to protect his assets. The client is looking to mitigate tax exposure generated by his investment portfolio. His children are still young and his wife has never worked, therefore the client is also looking to ensure the future financial stability of his family, should something happen to him.

Solution:
The Client concludes a LAP Luxembourg life insurance contract, of which he is both policyholder and insured person. He pays the premium partly in cash and partly through the transfer of assets held in his investment portfolio to Swiss Life (Luxembourg) S.A. The client appoints his wife and children as beneficiaries of the policy, and opts for a death cover which, upon his demise, will provide an additional 5% on top of the value of the contract.

Benefits:
Asset Protection: legal ownership of the portfolio is transferred to
Swiss Life (Luxembourg) SA, thereby providing an additional layer of protection against potential future creditors.

Tax Advantages: mitigation of withholding tax on dividend income and

capital gains (as per enclosed comparison table). Furthermore, the client is not liable to personal income tax on income accrued within the policy (tax deferral).

Estate Planning: upon the clients demise, smooth transfer of

insurance proceeds to the clients wife and children (i.e. avoidance of lengthy probate procedures). Furthermore, the children may benefit from a more favorable tax treatment applicable to insurance proceeds by the law of the country in which they reside when receiving the inherited asset.

Practical example
In 2011 the client receives a dividend in the amount of TRY 60 000 from a relevant participation in a Turkish company
After holding his participation in a non-listed Turkish company for 1 year, the client decides to sell it and generates a capital gains of TRY 150 000

Net income without Policy

51 000 TRY

Net income with Policy

54 000 TRY

97 500 TRY

150 000 TRY

The client decides as well to sell his government and Turkish companies bond portfolio, generating a gain of 90 000 TRY

81 000 TRY

90 000 TRY