1. A Study to Show How Investors Pile on Risk to
Earn Reasonable Returns
Submitted in Partial fulfillment of the requirements
for
Post Graduate Diploma in Management (PGDM)
Submitted by
CA. Harshit Shah
Roll No.: PG-15-051
Batch: 2015-17
IES Management College and Research Centre, Bandra (W),
Mumbai

2. IES Management College and Research Centre, Bandra (W),
Mumbai
MAY – JUNE 2016
Student’s Declaration
I hereby declare that this report, submitted in partial fulfillment of the requirement
for the award for the PGDM Course, to IES Management College and
Research Centre is my original work and not used anywhere for award of any
degree or diploma or fellowship or for similar titles or prizes.
I further certify that without any objection or condition subject to the permission
of the company where I did my summer project, I grant the rights to IES
Management College and Research Centre to publish any part of the project if
they deem fit in journals/Magazines and newspapers etc without my permission.
Signature
Name: CA. Harshit Shah
Date: Class: PGDM
Place: Mumbai Roll No. : PG-15-051

4. Certificate from the Faculty Guide
This is to certify that the dissertation submitted in partial fulfillment for the award
of PGDM course of IES Management College and Research Centre is a result
of the bonafide research work carried out by CA. Harshit Shah under my
supervision and guidance. No part of this report has been submitted for award of
any other degree, diploma, fellowship or other similar titles or prizes.
Faculty Guide
Signature: ______________
Date: Name: Dr. Suchismita Sengupta
Place: Mumbai Designation : Associate Professor

5. Acknowledgement
This project has been a great learning experience for me and I would like to
express my sincere gratitude to all the people who guide me through the project
and without the valuable guidance and suggestions of these people this project
would not have been completely successful.
I owe enormous intellectual debt towards my Faculty Guide Dr. Suchismita
Sengupta, Asst. Professor, IES Management College and Research Centre, Mrs.
Nikita Shah, Asst. Professor, S.P.Jain Institute of Management, Mr. Vrushank
Mehta, Head Corporate Strategy & Land Acquisition, The Wadhwa Group and
Mr. Purab Gupta, Head Trading, KIFS Securities Private Limited, for their
continuous support and cooperation throughout my project without which the
present work would not have been possible.

6. Contents
Nominal Return...............................................................................................................9
Real Returns ..................................................................................................................13
Return Increases from 5% to 6% and then to 7% .........................................................16
Freeze Risk at 12%........................................................................................................17
Two Assets Portfolio.....................................................................................................19
Risk Appetite of Investors.............................................................................................21
Executive Summary............................................................................................................1
Introduction.........................................................................................................................2
Objectives............................................................................................................................6
Methodology.......................................................................................................................6
Assumptions........................................................................................................................7
Analysis and Findings.........................................................................................................8
Conclusion ........................................................................................................................22
Reference ..........................................................................................................................23

7. Chart A: Nominal Returns (%) ...........................................................................................9
Chart B: Risk at 12% Nominal Return .............................................................................10
Chart C: Portfolio at 12% Nominal Return.......................................................................10
Chart D: Comparative Risk at different Expected Returns (Nominal) .............................11
Chart E: Portfolio at 13% Return Chart F: Portfolio at 13% Return .....................12
Chart G: Risk at 5% Return (Real) ...................................................................................13
Chart H: Real Return (%)..................................................................................................14
Chart I: Portfolio Composition for different years ...........................................................14
Chart J: Portfolio at 13% Return.......................................................................................16
Chart K: Portfolio at different Returns .............................................................................16
Chart L: Risk @12% vs. Return (Nominal)......................................................................17
Chart M: Risk @16% vs. Return (Nominal).....................................................................17
Chart N: Risk of two Asset Portfolio for 12% Expected Nominal Return .......................19
Chart O: Portfolio Mix on 2016 Chart P: Portfolio Mix on 2016.....................20
Chart Q:Risk under all three types of portfolio for an Expected Nominal Return of 12%
...........................................................................................................................................21

8. 1
Executive Summary
In today’s world people have many investment options. Gone are those days where
people had Sovereign Bonds and Gold for investment. As time pass these options
increased from just two to many others like Equity Market, Real Estate, etc. There has
been a drop in returns from Sovereign Bonds which has compelled the investors to move
towards this other options for investment and earn the same return which this Sovereign
Bonds use to give. Other Options like Equity Market and Real Estate have given a high
returns over a long period of time say Equity Market gives ~15% over a decade. Such
high return is often associated with high risk as we know High Return High Risk and
Low Risk Low Return.
Through our study, we have shown that in today’s time, any investor who wish to earn a
reasonable return has to take higher risk than that which he use to take a decade ago for
the same return. This is seen in both case of Nominal and Real Returns. We have also
seen that real returns from Nifty and Gold were unable to give positive returns for many
years under the period of study, making investors take high risk to earn reasonable real
return with lowering G Secs return. By freezing the risk which an investor is willing to
take we saw that the investor could not earn his desired reasonable nominal return and
indirectly it meant that he had to take more risk to earn his desired return.
Two asset portfolios (Nifty & G Secs and Gold & G Secs) also reflected the same picture
which the three asset portfolio had, Piling of Risk to Earn Reasonable Return. This three
combination shows that investors can invest in any one combination of portfolio to earn
same return based on their risk appetite. Nifty & G Secs being attached with High Risk,
Gold G Secs with Moderate Risk and All three Assets portfolio with Low Risk.

9. 2
Introduction
For an Investor of the age 24 years in India, he/she has to plan for his retirement and for
this he/she has many options today to invest, some of them are:
 Public Provident Fund: It is the safest and secure long-term investment
product amongst the best investment options in India. It is totally tax-free.
 Mutual Funds: People who want to invest in equities and bond with a
balance of risk and return generally choose to invest in mutual funds.
 Equity Shares: It is the best amongst the list of top 10 best investment
options in India for the long period of time.
 Real Estate Investment: One of the fastest growing sectors in India is real
estate, holding the huge prospects in major sectors like housing,
commercial, hospitality, manufacturing, retail and more.
 Gold ETF: Gold is one of the oldest and evergreen investment products. If
you are looking for a gold investment option you can simply opt for any
gold investment format like gold deposit scheme, gold ETF, Gold Bar,
Gold mutual fund etc.
 Post Office Monthly Income Scheme: Is a monthly income plan of Post Office
Saving Schemes is very suitable for retired people with regular income
requirements. This government saving scheme does not have any risk-
related factor but the interest is quite low.
 Company / Bank Fixed Deposits
 Unit Linked Insurance Plans: It is also known as ULIPs, which falls under the
list of top 10 best investment options in India. It invests in debt and
equities markets. The fluctuation is counted by the net asset value (NAV).
 Bonds: If you feel uncomfortable in investing in mutual funds and direct
equity market investments, then you can try investing in bonds. Investing
in bonds can be one of the best investment options since there are many
good bonds which actually provide a high rate of return on investments.
 Term Deposits with NBFC
 Debentures, etc.

10. 3
In developed countries like USA various investment options are:
 Certificates of Deposits: With a certificate of deposit (CD) you trade depositing
your money for a specific length of time to a financial institution. In return, you
get a set interest rate for that period and it does not change, no matter what
happens to interest rates. You are locked in until maturity of the term length.
 Treasury Inflation Protected Securities: The U.S. Treasury has several types
of bond investments for you to choose from. One of the lowest risk is called a
Treasury Inflation Protection Security or TIPS. These bonds come with two
methods of growth.The first is a fixed interest rate that doesn’t change for the
length of the bond. The second is built-in inflation protection that is guaranteed
by the government. Whatever rate inflation grows during the time you hold the
TIPS, your investment’s value rises with that rate.
 Money Market Funds: A money market fund is a mutual fund with the main
purpose of not losing any value of your investment. The fund also tries to pay out
a little bit of interest as well to make parking your cash with the fund worthwhile.
The fund’s goal is to maintain a net asset value (NAV) of $1 per share.
 Municipal Bonds: When a state or local government needs to borrow money, it
doesn’t use a credit card. Instead, the government entity issues a municipal bond.
These bonds, also known as munis, are except from federal income tax at the
very least.
 U.S. Savings Bonds: These are similar to TIPS because they are also backed by
the federal government. The likelihood of default on this debt is microscopic,
which makes them a very stable investment. There are two main types of US
Savings Bonds: Series I and Series EE.
 Annuities: Annuities have a bad reputation with some investors because shady
financial advisors over-promoted them to individuals where the annuity wasn’t
the right product for their financial goals. Annuities don’t have to be scary things;
they can help stabilize your portfolio over a long period.
 Cash Value Life Insurance: Another controversial investment is cash value life
insurance. First, this insurance pays out a death benefit to your beneficiaries
when you die; a term life insurance policy gives you this. Other types, known as
cash value policies, do that and also build up an investment account from your

11. 4
payments. Whole life insurance and universal life insurance are the chief cash
value offerings.
 Dividend Paying Stocks and Mutual Funds: One of the easiest ways to
squeeze a bit more return out of your stock investments is simply to target stocks
or mutual funds that have nice dividend payouts. If two stocks perform exactly
the same over a given time, one with no dividend and the other paying out 3% per
year, then the latter stock is a better choice.
 Preferred Stock: This is a type of stock has both an equity (stock) portion and a
debt portion (bond). In the credit hierarchy, governing which investors get paid
first during a bankruptcy, preferred stock sits between bond payments, which
come first, and common stock dividends, which come last.
 Peer to Peer Lending: P2P lending is a completely different type of investment.
Instead of buying shares in a company and its future profits, you lending your
money to someone else in hopes they will pay you back. This makes peer to peer
lending risky if you screen poorly. If you fund a terrible loan, you might not get
your money back.
 Real Estate
Risks and Returns are the two terms that click in your mind instantly whenever
you hear about Investment. All the three terms- Investment, Risks and Returns are
interlinked and interdependent. High investment leads to more risk which further
leads to higher returns.
Timeframe, Tolerance, Diversification, and Knowledge, these are the four
strategies which can reduce your exposure to investment risk. You should stay
invested for longer in that product with which you feel comfortable. Don't get
stuck to any one type of investment option and put efforts to understand the
financial world to become a good investor.
The process of constructing an investor portfolio can be viewed as a sequence of two
steps: (1) selecting the composition of one’s portfolio of risky assets such as stocks and
long-term bonds and (2) deciding how much to invest in that risky portfolio versus in a
safe asset such as short-term Treasury bills. Obviously, an investor cannot decide how to
allocate investment funds between the risk-free asset and that risky portfolio without

12. 5
knowing its expected return and degree of risk, so a fundamental part of the asset
allocation problem is to characterize the risk-return tradeoff for this portfolio.
According to Callan Associates Inc. research and as published in the same in The Wall
Street Journal, in U.S. in 1995 investors
invested 100% in Bonds to earn 7.5% having
6% risk attached to it. Over of period of 25
years this risk increased from 6% to 17.2% to
earn a strongly considered reasonable return
of 7.5%. During the same period investment
in Bonds shrink from 100% (1995) to 52%
(2005) and 12% (2015). Other asset class like
Global Stocks, Real Estate and Private Equity
were added to portfolio to earn the same
return of 7.5%.
“Do Investors in India also have to grapple with high risk
to earn reasonable return?”

13. 6
Objectives
To understand, the impact on Risk of
Portfolio when the Expected Reasonable
Return of Portfolio is same over the
period of time.
To create awareness among the
Investors, be it Retail or HNI or a
Corporate, that over a long run Risk of
Portfolio increases due to Volatility to
Earn Same Reasonable Return.
Methodology
The data for analysis is collected from secondary sources. These comprised of
nseindia.com, The Bombay Bullion Association, Newspapers and RBI Database. Data
was collected from the period 1991 to 2016 for the study. In this we have excluded 1992
as it represented abnormal rise in Nifty since 1991.
The data is that analyzed to get Average Nominal and Real Return and Standard
Deviation. Average Nominal and Real Return is calculated by taking a sample of 8 years
like for 2000 average of 1992 to 1999 and for 2001 it was 1993 to 2000 and so on so for.
Similarly Standard Deviation was also calculated with 8 years sample. In case of
Average Nominal and Real Returns and Standard Deviation of 2000, we have considered
data from 1993 to 1999 as 1992 reflected abnormal rise in Nifty, 240% rise since 1991.
Real Returns are calculated by taking WPI (Whole Sale Price Index) for Inflation which
was derived from RBI. Real Returns are calculated using (1+Nominal Return)/(1+Real
Return).

14. 7
Assumptions
Average Nominal / Real Return: We have considered 8 years for taking average
returns. It is being done so in lines with Nifty 8 years cycle (based on an article
dated 12th
February, 2016 in the The Hindu Business Line)
Risk: We have used Standard Deviation formula for calculating the risk attached
with various assets. The basic idea is that the standard deviation is a measure of
volatility: the more a stock's returns vary from the stock's average return, the
more volatile the stock.
Inflation: The wholesale price index (WPI) is the main measure of inflation. The
WPI measures the price of a representative basket of wholesale goods. In India,
wholesale price index is divided into three groups: Primary Articles, Fuel and
Power and Manufactured Products
Nominal Return: Have considered 12%, 13% and 14% as reasonable Nominal
Return which an Investor wishes to earn.
Real Returns: It is derived after considering and average Inflation of 7%. (i.e.,
[1+Nominal Return] / [1+Inflation]).
Optimum Portfolios are developed for various periods by Simplex Method (LPP).

15. 8
Analysis and Findings
In our study, we have selected three different assets to form a portfolio. This three are
selected based on their nature and risk attached to them.
First Asset is G Sec, i.e. Government Securities; G Secs are usually referred to risk free
securities. However, these securities are subject to only one type of risk i.e., interest-rate
risk Subject to changes in the overall interest rate scenario, the price of these securities
may appreciate or depreciate.
Second Asset is Gold; this is considered to be the Safe Haven Asset for Investment.
Whenever there is Global Crisis like a War or Man Made Disaster or Natural Disaster,
investors resort to Gold for Investment. The risk attached to this asset is a bit higher than
G Sec.
Third Asset is Nifty, popularly known as Nifty 50, as it represents equity markets in
India. Risk attached to this asset is higher than G Sec and Gold. This is mainly due to the
reason of High Volatility.
We have one more asset for investment, Real Estate, In India we have RESIDEX by
National Housing Bank that represents the growth in Real Estate. Since it was first
developed in 2007, it was not possible to get any data for years prior to this and hence we
have not considered Real Estate in Portfolio.
In a way, G Sec represents the Debt Market, Gold Commodity and Nifty the Equity
Market in order to form a portfolio.

16. 9
Nominal Return
The Investors in India mainly have three asset classes for investment; they are in Debt
Market, Equity Market and Commodity Market, G Sec shall represent Debt Market
having least risk attached to it, Nifty shall represent Equity Market and Gold is a Safe
Haven for investment in the world. Nominal Returns from this three Asset Class was,
Chart A: Nominal Returns (%)
Source: Author
Its only G Sec which gave positive nominal returns since 1996 to 2016 and at that time
Nifty gave a nominal return of +81.14% to -36.19% and Gold +39.19% to -14%. The
volatility in these two assets was due to various reasons like Subprime Crisis, Ketan
Mehta Scam, Dot Com Bubble, Iraq War, Oil Price Rise, etc. And when a portfolio is
formed comprising of this three assets with a view to earn a reasonable return of
12%p.a we have a rise in risk from 1.3% in 2000 to 7.6% in 2016.
-14.4%
39.2%
81.1%
-36.2%-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Nominal Returns (%)
Gold Nifty G Sec

17. 10
Chart B: Risk at 12% Nominal Return
Source: Author
Chart C: Portfolio at 12% Nominal Return
In 2000, G Sec comprised of 94%
of the portfolio and this dropped to
39% in 2016. This is mainly
because of drop in Yield in G Sec,
from 11.78% in 1992 to 7.5% in
2016, which compelled investors
to move towards other asset class
which seemed to be riskier than G
Sec. Risk attached to Nifty and
Gold as on 2016 was 29% to 15%
respectively and at that time G Sec
had just 1% risk. Source: Author
1.3%
2.9% 3.1%
2.0%
2.6%
31.6%
21.0%
10.9% 10.1%
8.4%
15.5%
6.3%
5.3%
7.2%
7.0%
9.1%
7.6%
12% 12% 12%
11.4%
10.5%
11.5%
12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12%
10%
10%
11%
11%
12%
12%
13%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Risk at 12% Nominal Return
Risk Nominal Return
Gold
5%
Gold
33%
Nifty
1%
Nifty
28%
G Sec
94%
G Sec
39%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2016
Portfolio at 12% Return (Nominal)
Return 12% 12%
Risk 1.3% 7.6%

18. 11
From Chart A, we can see that in 2003 to 2005 we were even unable to earn the return
on 12% even after investing 98% in G Sec and 1% each in Nifty and Gold. They returns
during this period was,
Period Average Nominal Return / Risk
Gold Nifty G Sec
2003 1.5% / 10% 1.1% / 19% 11.6% / 2%
2004 2.1% / 10% 1.4% / 19% 10.7% / 3%
2005 2.6% / 10% 11.6% / 32% 9.5% / 3%
Table 1, Source: Author
In 2005, Risk was the maximum at 31.2% due to heavy investment in Nifty i.e. 98% and
still we could not earn the return of 12%. Risk was highest as Nifty had 32% risk
attached with it for just 15% of return.
Chart D: Comparative Risk at different Expected Returns (Nominal)
Source Author
From Chart D it is evident that even though the nominal returns increased from 12% to
13% and later to 14%, risk was rising and it showed an upward trend. Risk rose from
1.1.% in 2000, for both Nominal return of 13% and 14% to 9.3% and 9.9% in 2016 for
13% and 14% return respectively. Portfolio combination was,
1.1% 9.3%
9.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Comparative Risk at different Expected Returns (Nominal)
Risk @ 13% Nominal Return Risk @ 14% Nominal Return

19. 12
Chart E: Portfolio at 13% Return Chart F: Portfolio at 13% Return
Source: Author Source: Author
If we see to compare Chart C, E and F, we understand that in 2016 to earn an
Incremental Return of 1%, our proportion of investment in G Sec decreased from 39% to
24% and then to 9%. Due to decrease in investment in G Sec, investment in Nifty and
Gold receives a boast and resulted in increase in risk of portfolio. Average Nominal
Return and Risk attached,
Period Average Nominal Return / Risk
Gold Nifty G Sec
2000 0.1% / 9% 3.5% / 35% 12.7% / 1%
2016 14.7% / 15% 14.4% / 29% 8% / 1%
Table 2, Source: Author
The table shows that risk attached with G Sec has remained same i.e. 1% but return has
dwindle from 12.7% to 8%, a drop of 4.7% and this drop has resulted in piling of risk
for investors from 1.3% to 7.6%.
Gold
1%
Gold
42%
Nifty
1%
Nifty
34%
G Sec
98%
G Sec
24%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2016
Portfolio at 13% Return
Gold
1%
Gold
58%
Nifty
1%
Nifty
33%
G Sec
98%
G Sec
9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2016
Portfolio at 14% Return

20. 13
Real Returns
Earlier we had seen that when we expected a Nominal Return of 12% / 13% / 14%, we
were unable to achieve that return with G Sec Bonds only, we had to invest in little risky
asset like Gold and Nifty which increased our risk over the period of 16 years from 2000
to 2016. Was it the same picture when we expected a Real Return, after considering an
average inflation (WPI) of 7%?
Chart G: Risk at 5% Return (Real)
Source: Author
Chart G shows that even returns in real term i.e. 5% could not be earned with rise in risk
from 2000 to 2016. Risk rose from 2.1% in 2000 to 7.2% 2016 i.e. 242% rise, highest
risk was witnessed in 2010 i.e. 10.8%. Average Nominal Returns from these assets could
not beat inflation and gave negative returns for many years.
2.1%
2.1%
2.3%
2.3%
1.9%
6.6%
9.1%
10.2%
8.4%
7.6%
10.8%
7.0% 7.1%
8.5%
8.9%
10.1%
7.2%
0%
1%
2%
3%
4%
5%
6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
20002001200220032004200520062007200820092010201120122013201420152016
Risk at 5% Real Return
Risk Real Return

21. 14
Chart H: Real Return (%)
Source: Author
Out a total period under consideration (Chart H), Nifty gave negative real returns for 8
years, highest being -40.9% and even Gold gave negative real return for 8 years. G Sec
also witnessed negative real returns for two years i.e. 2009 and 2011. Huge volatility was
witnessed in Nifty, its Real Returns in 2009 jumped from -40.9% to 67.4% in 2010, such
volatility in assets return increases the risk for earning reasonable returns.
Chart I: Portfolio Composition for different years
Source: Author
-40.9%
67.4%
-18.0% -1.0%-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0% Real Return (%)
Gold Nifty G Sec
G Sec
95%
G Sec
39%5%
1%
-3%
10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2004 2015 2016
Portfolio Composition for different years
Gold Nifty G Sec G Sec Returns Nifty Returns Gold Returns

22. 15
As Average Real Return (Chart I) of G Sec dropped from 5% to 1%, between 2004 to
2015, investment in G Sec also declined from 95% to 39% during the same period and
Investors diverted their investment from G Sec to Gold and Nifty which gave an Average
Real Return from -3% in 2004 to 10% for Gold and 6% for Nifty in 2015. Such volatility
in all the assets resulted in increase in portfolio risk from 1.9% as on 2004 to 10.1% in
2015.

23. 16
Return Increases from 5% to 6% and then to 7%
This shows that risk was same for
both all expected real returns in 2000,
i.e. 2.1% and it has remained same till
2004. Optimum Portfolio mix could
not fetch more than 5% of Real
Returns till 2004 and it was this
reason that Risk was same. In 2005 to
earn an incremental 1% real return
from 5%, we had to take an additional
risk from 6.6% to 21.6% and to earn
2% additional real return we had to
take a risk of 30.2%.
Chart J: Portfolio at 13% Return
Portfolio under the three expected returns
for 2005, Chart K, Source: Author, shows that
the major reason for increase in risk was
increase in investment in Nifty. As
proportion increased, risk too increased from
7% to 22% and 30% due to Nifty. Average
Real Return and Risk as on 2005 was,
Chart K: Portfolio at different Returns
Table 3, Source: Author
Average Real
Return
Risk
Gold -2% 10%
Nifty 7% 31%
G Sec 5% 3%
21.6%
8.7%2.1%
30.2%
10.1%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Comparative Risk at different
Expected Real Returns
Real Returns at 6% Real Returns at 7%
Gold
1%
Gold
1%
Gold
1%
Nifty
22%
Nifty
71%
Nifty
98%
G Sec
77%
G Sec
28%
G Sec
1%
7%
22%
30%
0%
5%
10%
15%
20%
25%
30%
35%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
5% 6% 7%
Gold Nifty G Sec Nifty Risk

24. 17
Freeze Risk at 12%
Chart L: Risk @12% vs. Return (Nominal)
Source: Author
The above chart shows that, it was difficult to earn a reasonable return (nominal) of
12% even after having a 12% risk appetite. Of the 17 years reflected in the chart, we
could earn 12% or more in just 6 years, it was from the period 2007 to 2013. In the year
2003 and 2004, we had earned just 4.8% return (nominal) which was below 5% Return
(Real). This indirectly shows that Investors have to pile on risk to earn reasonable return.
Chart M: Risk @16% vs. Return (Nominal)
Source: Author
9.5%
10.9% 11.7%
4.8%
4.8%
10.3%
10.6%
12.4%
12.8%
11.9%
10.9%
13.4%
15.1%
12.1%
11.8%
10.0%
10.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Risk @12% vs. Return (Nominal)
Return Risk @12%
8.4%
10.4%
11.5%
2.6%
2.7%
10.5% 11.2%
13.7%
14.4%
13.4%
12.1%
15.5%
17.6%
13.5%
13.1%
10.6%
11.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Risk @16% vs. Return (Nominal)
Return Risk @16%

25. 18
When risk is increased from 12% to 16%, we have earned 12% or more for 8 years out
of 17 years but in 2003 and 2004, returns (nominal) dropped to 2.6% from 4.8% when
risk was 12%. Year 2003 and 2004 have behaved as outliners.

26. 19
Two Assets Portfolio
Instead of investing in a portfolio of three assets, we have considered a combination of
two assets i.e. G Sec and Gold and other being G Sec and Nifty.
Chart N: Risk of two Asset Portfolio for 12% Expected Nominal Return
Source: Author
It is evident that investment in a portfolio of Gold & G Sec is less risky than that of G
Sec 7 Nifty. Risk rose from 2.8% to 18.5% for Nifty & G Sec Portfolio but in case of
Gold & G Sec it raised from 1.3% to 8.9%. During 2005, Nifty & G Sec portfolio had a
risk of 31.9% and Gold & G Sec had 2.7%, but things changed in 2008, Nifty & G Sec
portfolio had a risk of 10.1% from its peak of 31.9% in 2005 and Gold & G Sec portfolio
had a risk of 12.25 making it risky for that particular period. Co incidentally, this risk of
12.2% was the highest for Gold & G Sec portfolio for period under consideration.
1.3%
2.7%
12.2%
8.9%
2.8%
31.9%
10.1%
18.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Risk of Two Asset Portfolio for 12% Expected Nominal Return
G Sec & Gold G Sec & Nifty

27. 20
Chart O: Portfolio Mix on 2016 Chart P: Portfolio Mix on 2016
Source: Author Source: Author
For just 2% drop in investment in G Sec resulted in increase of Portfolio Risk from 8.9%
to 18.5% as on 2016. This reflects the riskiness attached in investment in Nifty. As the
expected return earned from both the portfolios is 12%.
60%
40%
Portfolio Mix on 2016
Gold G Sec
62%
38%
Portfolio Mix on 2016
Nifty G Sec

28. 21
Risk Appetite of Investors
Chart Q:Risk under all three types of portfolio for an Expected Nominal Return of
12%
Source: Author
It is evident from Chart Q that investment in all three assets portfolio is a less risky that
any other type of portfolio. Even though all three assets portfolio is less risky, risk rise
from 1.3% in 2000 to 7.6% in 2016. Hence, if an investor is willing to take higher risk he
can invest in a portfolio of Nifty & G Sec, less risk than in Gold & G Sec and least risk
than in a combination of all three assets.
2.7%
8.9%
2.8%
18.5%
1.3%
31.6%
7.6%0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Risk under all three types ofPorfolio for an Expected Nominal Return
of 12%
Gold & G Sec Nifty & G Sec All Three Assets

29. 22
Conclusion
Risk and Return are two sides of same coin. We have always been looking at one side
of coin i.e. Return and have continued to develop investment portfolios based on this
Return. After this study, we can see that it is also important to look at the other side
while investing.
Money making is becoming riskier as risk attached to same level of return both nominal
and real is showing an upward trend. Decrease in returns from G Secs has made
investors in India invest in risky assets and this resulted in overall increase in their
portfolio.

30. 23
Reference
G Sec, RBI records, Weighted Average Interest Rates of Central Government
Securities.
Gold, Market rates of 24 Carats 10 gms as on 31st
March of every year, The
Bombay Bullion Association/Newspaper.
Nifty, Closing Index value on 31st
March of every year as provided by
nseindia.com
Inflation (WPI), RBI Database
Forbes article dated 7th
January, 2013 on “How to Find Low Risk, High Return
Investment”