Professional Documents
Culture Documents
Meaning
It is a combination of securities such as
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Portfolio managers
Only those who are registered and pay the license
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Portfolio management
service
It means the professional services rendered
for management of portfolio of others,
namely, clients or customers with the help of
experts in investment advisory services.
This involves advice regarding the worth of
investment instruments and advice of what to
buy and sell. It also involves continuing
relationship with the client to manage
investments with or without discretion for the
client as per his requirements.
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SEBI norms
They cannot assure any fixed return to the
client.
The investment made is subject to market risk
No sharing of profits of discounts to client are
permitted
PMs are prohibited to do lending, bills
discounting etc.
Investment can be made in both capital and
money markets
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Types of portfolios
Discretionary portfolio management services
(DPMS)
Non-discretionary portfolio management
services
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Discretionary portfolio
manager
and
NonThe discretionary portfolio manager
discretionary
portfolio
individually and independently
manages the
funds of each client in accordance with the
manager
needs of the client.
The non-discretionary portfolio manager
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Patient Portfolio
Patient portfolio refers to holding of stocks of
Aggressive Portfolio
Aggressive portfolios are exactly contrary to
Conservative Portfolio
The conservative portfolio is a combination of
- Security valuation
-Asset allocation
-Portfolio optimization
-Performance measurement
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Traditional approach in
portfolio
construction
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Assumptions of Capital
Market
Theory
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Markowitz model
Portfolio risk can be reduced by the simplest
kind of diversification.
Assumptions:
- Investor estimates risk on the basis of
variability of returns.
- investors decision solely based on the
expected return and variance of return only.
- For a given level of risk, investor prefers
higher return and a given level of return
investor prefers lower risk.
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Markowitz efficient
frontier
The risk and return of all portfolios plotted in
risk-return space would be dominated by
efficient portfolios.
Efficient frontier is the line along which all
attainable and efficient portfolios are
available.
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of the stock.
Investors are assumed to have homogeneous
expectations during decision making period.
Investors can lend or borrow any amount of funds
at the riskless rate of interest.
Assets are infinitely divisible.
There is no transaction cost
There is no personal income tax
Unlimited quantum of short sales allowed.
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combination is
Rp = Rf Xf + Rm(1-Xf)
where Rp portfolio return
Xf proportion of funds invested in riskfree assets
1-Xf the proportion of funds invested in risky
assets
Rf riskfree rate of return
Rm return on risky assets
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Beta
Beta is a measure of systematic risk which is
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