INTRODUCTION OF PORTFOLIO MANAGEMENTA portfolio refers to a collection of investment tools such as stocks, shares, mutual funds,

bonds, and cash and so on depending on the investor’s income, budget and convenient time

frame. The art of selecting the right investment policy for the individuals in terms of minimum

risk and maximum return is called as portfolio management. Portfolio management refers to

managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc so

that he earns the maximum profits within the stipulated time frame.

Portfolio management refers to managing money of an individual under the expert guidance of

portfolio managers. Portfolio management refers to the management or administration of a

portfolio of securities to protect and enhance the value of the underlying investment. It is the

management of various securities (shares, bonds etc) and other assets (e.g. real estate), to

meet specified investment goals for the benefit of the investors. It helps to reduce risk without

sacrificing returns. It involves a proper investment decision with regards to what to buy and

sell. It involves proper money management. It is also known as Investment Management.

PMS SERVICES OFFERED BY PORTFOLIO MANAGERS

1. Personal Relationship Manager

The portfolio manager acts as a personal relationship manager that enables the client to interact with the fund manager at any given point of time depending on his preference.

2. Monthly Discussion

Clients can discuss any concerns or issues related to the money or savings with their appointed portfolio manager on monthly basis. The client can interact and discuss regarding any major changes related to the investment strategies and asset allocation.

1

3. Asset Allocation

Portfolio Manager assists in the allocation of assets or savings of clients by advising regarding the investments in stocks, bonds or equity funds. The Asset allocation plan is customized as per the risk preference and goals of the clients. This plan is designed by doing the detailed analysis and evaluation of the client’s risk taking capacity, savings pattern, and investment goals.

4. Timing

Portfolio managers help the clients in taking timely decisions and thereby preserving their money on time. Portfolio management service assists in the allocating of money at precise time in suitable saving plan. Thus, portfolio managers offer their professional and proficient advice to the clients and suggest when the money should be invested in equities or bonds and when it should be taken out from a particular saving plan. Portfolio managers give their recommendations after analyzing the market thoroughly. They ask the clients to withdraw their money from market in times big risk in stock market and prevents heavy losses.

5. Flexibility

Portfolio managers have detailed knowledge of the market conditions and they are the experts of field. They can plan the savings of the client according to his preferences and requirements. It is possible that portfolio managers can invest the client’s money according to his preference as they are specialists of the market. Thus, clients can provide flexibility to the portfolio managers to manage their investment with complete efficiency and effectiveness.

6. Administration handling

Portfolio management service (PMS) involves handing and care of all type of administrative work by the portfolio managers such as opening a new bank account or taking financial settlement, etc.

2

NEED FOR PORTFOLIO MANAGEMENT Portfolio management presents the best investment plan to the individuals as per their

income, budget, age and ability to undertake risks.

Portfolio management minimizes the risks involved in investing and also increases the

chance of making profits.

Portfolio managers understand the client’s financial needs and suggest the best and

unique investment policy for them with minimum risks involved.

Portfolio management enables the portfolio managers to provide customized

investment solutions to clients as per their needs and requirements.

SWOT ANALYSIS: PORTFOLIO MANAGEMENT

SERVICES

A) Strength:

Diversified Investment - PMS are having a number of investment objectives from which an

investor can choose according to his requirements, time to get returns etc.

Easy procedure - The procedure involved for purchasing or selling shares is not very easy.

Individual investor can also easily understand and can himself buy or sell shares.

Professional Management - The service provides professional management of portfolios with

the objective of delivering consistent long-term performance while controlling risk.

Continuous Monitoring - It is important to recognize that portfolios need to be constantly

monitored and periodic changes made to optimise the results.

Risk Control - A research team responsible for establishing the client’s investment strategy and

providing the PMS provider real time information to support it backs any firm’s portfolio

managers.

3

Hassle Free Operation - Portfolio Management Service provider gives the client a customized

service. The company takes care of all the administrative aspects of the client’s portfolio with a

periodic reporting (usually daily) on the overall status of the portfolio and performance.

Flexibility - The Portfolio Manager has fair amount of flexibility in terms of holding cash (can go

up to 100% also depending on the market conditions). He can create a reasonable

concentration in the investor portfolios by investing disproportionate amounts in favour of

compelling opportunities.

Transparency – PMS provide comprehensive communications and performance reporting.

Investors will get regular statements and updates from the firm. Web enabled access will

ensure that client is just a

click away from all information relating to his investment. Your account statements will give

you a complete picture of which individual securities you hold, as well as the number of shares

you own. It will also usually provide:

a. the current value of the securities you own;

b. the cost basis of each security;

c. details of account activity (such as purchases, sales and dividends paid out or reinvested);

d. your portfolio’s asset allocation;

e. your portfolio’s performance in comparison to a benchmark;

f. market commentary from your Portfolio Manager

Customised Advice - PMS give select clients the benefit of tailor made investment advice

designed to achieve his financial objectives. It can be structured to automatically exclude

investments you may own in another account or investments you would prefer not to own. For

example, if you are a long-term employee in a company and you have acquired concentrated

stock positions over the years and have become over exposed too little company’s stock, a

separately managed account provides you with the ability to exclude that stock from your

portfolio.

Personalised Approach – Some Portfolio Managers may provide a personal investment

management service to achieve the client’s investment objective. In PMS, you may gain direct

personalised access to the professional money managers who actively manage your portfolio.

4

This interaction may come in various different ways including in-person meetings, conference

calls, written commentary, etc with the fund management team.

B) Weakness:

Market risk - The capital market is highly volatile in nature. No matter how much one is

precautious, he will always be under threat of incurring losses.

No control over cost - There is not much control over the cost of operations as the market is

volatile and the cost increases quickly or dawn rapidly.

High risk - The share market is a place where price of the shares goes up & down rapidly so its

always create a high risk.

Ticket size – Most of the Portfolio Management Schemes have ticket size in more than few

Lakhs and Crores in compare with other Financial Instrument like MF which is less attract small

investors towards investing PMS.

Profit Sharing – Most of the companies are in the term of profit sharing with their clients and

for that they do hedge in the equity market to generate the profit which is very risky.

C) Opportunities:

Growing PMS Market with Capital Market - PMS market in India is growing at a very fast pace

with the Indian Capital Market and if this pace continuous then Indian PMS and capital market

will be one of the strongest economies of the world and investment in this today will then be

very fruitful.

Branch expansion - Large no. of branches are opening day by day which are trapping the

countries having almost same type of socioeconomic condition & even same culture etc.

Untapped Retail Investors – Most of the companies are only doing niche marketing for their

portfolio schemes and they are targeting maximum to the high net worth investors. So, retail

investors are getting less attention for that which can be also a part of getting huge market.

5

Untapped rural market - Rural market in India is still not covered fully by the various AMCs.

Rural market in India is a very big market and if this market is tapped then awareness about

PMS can boost a lot.

Debt fund oriented schemes – As the day to day changing scenario of Stock market, risk is

increasing. So, for that companies should focus in the purely Debt fund oriented schemes which

is less focused by most of the companies in the present time.

D) Threats:

Tough competition - There is very tough competitions because of large number of companies

are providing Portfolio Services these days.

New Entrant – As per the SEBI data of growth of PMS market year by year, numbers of new

companies which include foreign companies are entering in this part of the Investment as there

is a huge potential in India in the future and also which create the very tough competition.

Unawareness – Major percent of population is not aware of PMS, so it’s hard to convince

people.

Changing scenario - Our market scenario is changing day by day i.e. our market is fluctuating, so

this makes investor hard to invest in shares though in PMS too.

6

COMPANY STRUCTUREHDFC Bank's Private Banking division is an award-winning service offering a range of financial

investment advisory services. HDFC bank successfully adapt to the ever-evolving economic

landscape while providing customized solutions to create and manage wealth for our clients. As

pioneers in private sector financial services in India, they offerings with stringent processes and

due diligence that are powered by superior research and deep domain knowledge.

At HDFC Bank Private Banking, provide exceptional private banking services by understanding

our customers' needs to develop innovative and customized portfolios. The objective is to

ensure our clients' financial well-being. In this regard, provide a range of strategic investment

solutions by leveraging our deep-domain knowledge and research capital.

The Bank at present has an enviable network of 2201 branches and 7110 ATMs spread in 996

cities across India. They also have one overseas wholesale banking branch in Bahrain, a branch

in Hong Kong and two representative offices in UAE and Kenya.

The Bank has two subsidiary companies, namely HDFC Securities Ltd and HDB Financial Services

Ltd. The Bank has three primary business segments, namely banking, wholesale banking and

treasury. The Bank`s shares are listed on the Bombay Stock Exchange Limited and The National

Stock Exchange of India Ltd. The Bank`s American Depository Shares (ADS) are listed on the

New York Stock Exchange (NYSE) and the Bank`s Global Depository Receipts (GDRs) are listed

on Luxembourg Stock Exchange.

7

ORGANIZATIONAL STRUCTURE

INVESTMENT PHILOSOPHY8

Managing DirectorAditya PuriChairman of board

Chander vasudevDirectorPartho Datta

DirectorRenu karnad

DirectorVijay Marchant

CEO Keki Mistry

DirectorPandit Palande

DirectorBobby Parikh

INVESTMENT PRINCIPLES

9

WEALTH CREATIO

N

Minimize Capital Losses Greater emphasis on price of

Focus on identifying strong Ignore short term volatilityInvestment candidates

Invest for the long term Low Levels of Trading Activity

INVESTMENT PROCESS

Adding value through active management

Team Approach coupled with talented individuals

INVESTMENT DISCIPLINE RISK MAANAGEMENT

Long term focus, but understand short term drivers

10

Purchase

HDFC BANK PMS PRODUCT An HDFC Bank service ensures that our clients can pursue an individualized plan to achieve

their investment goals. Our product suite is a one-stop solution for your entire portfolio needs

across equity, fixed income, mutual funds, structured products, estate planning, etc.

customized to your risk-return profile. Our product suite includes:

1. Direct equity

Our in-house equity research desk provides recommendations based on strong company

fundamental analyses. This is supported by a network of analysts with expertise in key sectors

across industries. Our equity desk tracks various sectors and uses a mix of top down and

bottom-up approach to identify stocks. Exposure to these is recommended on the basis of your

risk profile - be it conservative, aggressive or moderate.

The direct equity product offering include:-

Model Portfolio (Aggressive & Conservative)

Stock Flash

Regular company/result updates

Regular company updates

Thematic Notes: These notes are largely sent to discuss important events/themes that

are impacting the markets and desk views on the same

Market Impact: These are notes on quarterly analysis of the companies of the model

portfolios

Sector report/ Sector Update: These are notes on a specific sector, explaining the basic

business model and subsequent updates on the current scenario in the sector

2. Mutual funds

We offer a complete range of Equity, Debt and Ultra-Short term Income funds to meet

individual risk-return objectives. The selection of mutual funds is based on a range of

parameters built on Qualitative due-diligence and Quantitative tools like FAMA Ratio,

11

Performance Consistency Ratio, standard deviation, volatility, rolling returns, expense ratio,

Credit Rating and more. The funds are distributed to clients across AMCs and are built on the

principles of conservative approach and focused advice. MAAG (mutual fund analysis tool) is

used to analyze the holdings across Equity and Balanced mutual Funds as the tool provides a

snapshot to assess the asset allocation, market capitalization, sectoral holdings and company

holdings.

3. Fixed income product

We offer fixed income products like Government bonds, Tax Free Bonds, fixed maturity plans,

income funds; Bank Deposit, etc. in line with the client's risk-return profile. Capital Gains Bonds

like NABARD, NHAI, and REC and, RBI Bonds are also provided to clients.

4. Private equity funds

In terms of asset class, private equity focuses on generating superior returns whilst improving

portfolio diversification. However, these funds are illiquid and recommended for aggressive

investors. Our in house research team carefully evaluates and selects private equity funds that

will help you achieve your long-term investment goals. We suggest a large range of funds

managed by some of the leading and trusted names in the industry.

PORTFOLIO CHARACTERISTICS

EXPOSURE LIMIT UNDER NORMAL CIRCUMSTANCES

To a single stock 1.5 to 15%

To a sector/industry 30%

Portfolio will consist of four uncorrelated sectors

Rigorous company analysis guided by fundamentals of the stock

Growth available at reasonable valuation

Discounted asset value as compared to enterprise value

12

MINIMUM FUNDS AND FEES PAYABLE

MINIMUM FUNDS – RS. 25 LACS

PORTFOLIO MANAGEMENT FEES

-2.75% P.A OF DAILY AVERAGE ASSETS UNDER MANAGEMENT

OR

-1.75% P.A. OF DAILY AVERAGE ASSET UNDER MANAGEMENT PLUS

-20% OF GAINS IN EXCESS OF 10% P.A.

EXIT FEES

UPTO 12 MONTHS- 3%

MORE THAN 12 MONTHS UPTO 24 MONTHS- 2%

MORE THAN 24 MONTHS-NIL

FEES AND CHARGES

Profit sharing / performance related fees are usually charged by portfolio managers upon

exceeding a hurdle rate or benchmark as specified in the agreement. However there is no

uniformity in practice on how the profit / performance of the portfolio computed. It is advised

that, henceforth, profit / performance shall be computed on the basis of high water mark

principle over the life of the investment, for charging of performance / profit sharing fee.

High Water Mark Principle:

High Water Mark shall be the highest value that the portfolio/account has reached. Value of the

portfolio for computation of high watermark shall be taken to be the value on the date when

performance fees are charged. For the purpose of charging performance fee, the frequency

13

shall not be less than quarterly. The portfolio manager shall charge performance based fee only

on increase in portfolio value in excess of the previously achieved high water mark.

Illustration: Consider that frequency of charging of performance fees is annual.

A client’s initial contribution is Rs.10,00,000, which then rises to Rs.12,00,000 in its first year; a

performance fee/ profit sharing would be payable on the Rs.2,00,000 return. In the next year

the portfolio value drops to Rs.11, 00,000 hence no performance fee would be payable. If in the

third year the Portfolio rises to Rs.13,00,000, a performance fee/profit sharing would be

payable only on the Rs1,00,000 profit which is portfolio value in excess of the previously

achieved high water mark of Rs.12,00,000, rather than on the full return during that year from

Rs.11,00,000 to Rs.13,00,000. All fees and charges shall be levied on the actual amount of

clients’ assets under management.

High Water Mark shall be applicable for discretionary and non-discretionary services and not

for advisory services. In case of interim contributions/ withdrawals by clients, performance fees

may be charged after appropriately adjusting the high water mark on proportionate basis. To

ensure transparency and adequate disclosure regarding fees and charges, the client agreement

shall contain a separate Annexure which shall list all fees and charges payable to the portfolio

manager. The Annexure shall contain details of levy of all applicable charges on a sample

portfolio of Rs.10 lacs over a period of one year. The fees and charges shall be shown for 3

scenarios viz. when the portfolio value increases by 20%, decreases by 20%.

FEES AND CHARGESThis computation is for illustrative purpose only. Portfolio Managers may suitably modify

This to reflect their fees and charges.

The assumptions for the illustration are as follows:

a. Size of sample portfolio: Rs. 10 lacs over

b. Period: 1 year

c. Hurdle Rate: 10% of amount invested

14

d. Brokerage/ DP charges/ transaction charges: Weighted Average of such charges (as a

Percentage of assets under management) levied in the past year/ in case of new portfolio

Managers’ indicative charges as a percentage of assets under management (e.g. 2%)

e. Upfront fee (e.g. 2%)

f. Management fee (e.g. 2%)

g. Performance fee (e.g. 20% of profits over hurdle rate)

h. The frequency of calculating all fees is annual.

A)

15

B)

SWOT ANALYSIS OF HDFC BANKSTRENGTH

Support of various promoters

High level of services

Knowledge of Indian market

Right strategy for the right products.

Superior customer service vs. competitors

Great Brand Image

Products have required accreditations.

16

High degree of customer satisfaction.

Good place to work

Lower response time with efficient and effective service.

Dedicated workforce aiming at making a long-term career in the

field.

WEAKNESSES

Some gaps in range for certain sectors.

Problems of sales staff.

Processes and systems, etc.

Not been fully able to position it correctly

Opportunities

Profit margins will be good.

Could extend to overseas broadly.

New specialist applications.

Could seek better customer deals

Fast-track career development opportunities on an industry-wide

basis.

An applied research centre to create opportunities for developing

techniques to provide value-added services.

Growing Indian banking sector

People are becoming more service oriented

global market opportunity

Threats

17

•Legislation could impact.

•Great risk involved

•Very high competition prevailing in the industry.

•Vulnerable to reactive attack by major competitors

•Lack of infrastructure in rural areas could constrain investment.

•High volume/low cost market is intensely competitive.

SEBI (PORTFOLIO MANAGERS) REGULATIONS 1993 Portfolio Managers are registered and regulated under the SEBI (Portfolio Managers)

Regulations 1993.

Portfolio managers accepting funds or securities less than `5lakh from clients and

opening client accounts.

It is clarified that the first single lump-sum investment amount received as funds or

securities from clients should not be less than 5 Lakh.

It shall disclose the performance of portfolios grouped by investment category for the

past three years

DISCLOSURES BY SEBI

1) What is the difference between a discretionary portfolio manager and a non- discretionary

portfolio manager?

The discretionary portfolio manager individually and independently manages the funds of each

client in accordance with the needs of the client.

The non-discretionary portfolio manager manages the funds in accordance with the directions

of the client.

18

2) What is the procedure of obtaining registration as a portfolio manager from SEBI?

For registration as a portfolio manager, an applicant is required to pay a non-refundable

application fee of Rs.1,00,000/- by way of demand draft drawn in favor of ‘Securities and

Exchange Board of India’, payable at Mumbai.

The application in Form A along with additional information (Form A and additional information

available on SEBI Website.

3) What is the capital adequacy requirement of a portfolio manager?

The portfolio manager is required to have a minimum net worth of Rs. 2 crore.

4) Is there any registration fee to be paid by the portfolio managers?

Yes. Every portfolio manager is required to pay Rs. 10 lakhs as registration fees at the time of

grant of certificate of registration by SEBI.

5) How long does the certificate of registration remain valid?

The certificate of registration remains valid for three years. The portfolio manager has to apply

for renewal of its registration certificate to SEBI, 3 months before the expiry of the validity of

the certificate, if it wishes to continue as a registered portfolio manager.

6) How much is the renewal fee to be paid by the portfolio manager?

The portfolio manager is required to pay Rs. 5 lakh as renewal fees to SEBI.

7) Is there any contract between the portfolio manager and its client?

Yes. The portfolio manager, before taking up an assignment of management of funds or

portfolio of securities on behalf of the client, enters into an agreement in writing with the

client, clearly defining the inter se relationship and setting out their mutual rights, liabilities and

19

obligations relating to the management of funds or portfolio of securities, containing the details

as specified in Schedule IV of the SEBI (Portfolio Managers) Regulations, 1993.

8) What kind of reports can the client expect from the portfolio manager?

The portfolio manager shall furnish periodically a report to the client, as agreed in the contract,

but not exceeding a period of six months and as and when required by the client and such

report shall contain the following details, namely:-

(a) the composition and the value of the portfolio, description of security, number of securities,

value of each security held in the portfolio, cash balance and aggregate value of the portfolio as

on the date of report;

(b) Transactions undertaken during the period of report including date of transaction and

details of purchases and sales;

(c) Beneficial interest received during that period in respect of interest, dividend, bonus shares,

rights shares and debentures;

(d) Expenses incurred in managing the portfolio of the client;

(e) Details of risk foreseen by the portfolio manager and the risk relating to the securities

recommended by the portfolio manager for investment or disinvestment.

This report may also be available on the website with restricted access to each client. The

portfolio manager shall, in terms of the agreement with the client, also furnish to the client

documents and information relating only to the management of a portfolio. The client has right

to obtain details of his portfolio from the portfolio managers.

20

9) Are investors required to open demat accounts for PMS services?

Yes. For investment in listed securities, an investor is required to open a demat account in his/her own name.

10) Does SEBI approve any of the services offered by portfolio managers?

No. SEBI does not approve any of the services offered by the Portfolio Manager. An investor has to invest in the services based on the terms and conditions laid out in the disclosure document and the agreement between the portfolio manager and the investor.

11) Does SEBI approve the disclosure document of the portfolio manager?

The Disclosure Document is neither approved nor disapproved by SEBI. SEBI does not certify the

accuracy or adequacy of the contents of the Disclosure Document.

12) What are the rules governing services of a Portfolio Manager?

The services of a Portfolio Manager are governed by the agreement between the portfolio

manager and the investor. The agreement should cover the minimum details as specified in the

SEBI Portfolio Manager Regulations. However, additional requirements can be specified by the

Portfolio Manager in the agreement with the client. Hence, an investor is advised to read the

agreement carefully before signing it.

13) Is premature withdrawal of Funds/securities by an investor allowed?

The funds or securities can be withdrawn or taken back by the client before the maturity of the

contract. However, the terms of the premature withdrawal would be as per the agreement

between the client and the portfolio manager.

14) Can a Portfolio Manager impose a lock-in on the investor?

Portfolio managers cannot impose a lock-in on the investment of their clients. However, a

portfolio manager can charge exit fees from the client for early exit, as laid down in the

agreement.

21

15) Can a Portfolio Manager offer indicative or guaranteed returns?

Portfolio manager cannot offer/ promise indicative or guaranteed returns to clients.

.

16) On what basis is the performance of the portfolio manager calculated?

The performance of a discretionary portfolio manager is calculated using weighted average

method taking each individual category of investments for the immediately preceding three

years and in such cases performance indicator is also disclosed.

17) Where can an investor look out for information on portfolio managers?

Investors can log on to the website of SEBI www.sebi.gov.in for information on SEBI regulations

and circulars pertaining to portfolio managers. Addresses of the registered portfolio managers

are also available on the website.

18) How can the investors redress their complaints?

Investors would find in the Disclosure Document the name, address and telephone number of

the investor relation officer of the portfolio manager who attends to the investor queries and

complaints. The grievance redressal and dispute mechanism is also mentioned in the Disclosure

Document. Investors can approach SEBI for redressal of their complaints. On receipt of

complaints, SEBI takes up the matter with the concerned portfolio manager and follows up with

them.

22