INTRODUCTION OF PORTFOLIO MANAGEMENT
A 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
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.
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.
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.
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
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
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
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
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
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.
This interaction may come in various different ways including in-person meetings, conference
calls, written commentary, etc with the fund management team.
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.
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
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.
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.
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
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.
HDFC 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.
Invest in companies that
have a strong
over their peers
Stress on analysis of
and not on
of stock market
Buy high quality
companies at reasonable
attractive companies at
Invest when prices
Minimize Capital Losses Greater emphasis on price of
Focus on identifying strong Ignore short term volatility
Invest for the long term Low Levels of Trading Activity
Adding value through active management
Team Approach coupled with talented individuals
INVESTMENT DISCIPLINE RISK MAANAGEMENT
Long term focus, but understand short term drivers
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)
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
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,
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
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.
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
MINIMUM FUNDS AND FEES PAYABLE
MINIMUM FUNDS – RS. 25 LACS
PORTFOLIO MANAGEMENT FEES
-2.75% P.A OF DAILY AVERAGE ASSETS UNDER MANAGEMENT
-1.75% P.A. OF DAILY AVERAGE ASSET UNDER MANAGEMENT PLUS
-20% OF GAINS IN EXCESS OF 10% P.A.
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
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 CHARGES
This 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
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.
IF PORTFOLIO PERFORMANCE:GAIN OF 20%
Nature of fees
Capital Contribution 10,00,000
Less : upfront fees (2%) 20,000
AssetUnder Management 9,80,000
Add : Profits on investmentduring the year @ 20% on assets
Gross Value of the portfolio at the end of the year 11,76,000
Less: Brokerage/DP charges/any other similar charges
( 2% of Rs. 9,80,000)
Less: Management Fees ( 2% of Rs. 9,80,000) 19,600
Less: Performance fees ((e.g. 20% of Rs.98,000) 19,600
Totalcharges during the year 58,800
Net value of the portfolio at the end of the year
% change over capital contributed
IF PORTFOLIOPERFORMANCE:LOSS OF 20%
Natureof fees Amount
Capital Contribution 10,00,000
Less: Upfront fees (2%) 20,000
Assetsunder management 9,80,000
Less: Loss on investmentduring the year @ 20% on
Gross Value of the portfolio at the end of the year 7,84,000
Less: Brokerage/DP charges/any other similar charges
( 2% of Rs. 9,80,000)
Less: Management Fees ( 2% of Rs. 9,80,000) 19,600
Totalcharges during the year 39,200
Net value of the portfolio at the end of the year
% change over capital contributed
SWOT ANALYSIS OF HDFC BANK
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.
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
Some gaps in range for certain sectors.
Problems of sales staff.
Processes and systems, etc.
Not been fully able to position it correctly
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
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
•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)
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
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.
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
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.
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
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