Risk management techniques used in portfolio management

DESSERTATION REPORT
OF
A STUDY ON
RISK MANAGEMENT TECHNIQUES IN INVESTMENT AND
PORTFOLIO MANAGEMENT
Submitted in partial fulfillment of the requirements for the award
of the two year full time degree of
POST GRADUATION DIPLOMA IN MANAGEMENT
By
Sudip Kaushal
Roll. No. : GM 16154
Under the guidance of
Mr. Atul Kumar Arora
Ass. Professor (GLBIMR)
G L BAJAJ INSTITUTE OF MANAGEMENT AND RESEARCH
GREATER NOIDA
2016–2018

DECLARATION
I hereby declare that “A Study on Risk Management Techniques in
Investment and Portfolio Management” is the result of the project work
carried out by me under the guidance of MR. ATUL KUMAR ARORA in
partial fulfillment for the award of two year full time degree of POST
GRADUATION DIPLOMA IN MANAGEMENT from G L Bajaj Institute of
Management and Research, Greater Noida.
I also declare that this project is the outcome of my own efforts and that it has
not been submitted to any other university or Institute for the award of any
other degree or Diploma or Certificate.
Place: Greater Noida
Name: Sudip Kaushal
Roll No.: GM 16154
Date: 30/01/2018

GL BAJAJ INSTITUTE OF MANAGEMENT AND RESEARCH
Plot no. 2, Knowledge Park – III, Greater Noida, UP
CERTIFICATE
Date: January 28, 2018
This is to certify that the dissertation titled “A Study on Risk Management
Techniques in Investment and Portfolio Management” is an original work
of Mr. SUDIP KAUSHAL; bearing Roll Number GM 16154 and is being
submitted in partial fulfillment for the award of two year full time degree of
POST GRADUATION DIPLOMA IN MANAGEMENT from G L Bajaj
Institute of Management and Research, Greater Noida.
The report has not been submitted earlier either to this University /Institution
for the fulfillment of the requirement of a course of study
SIGNATUREOFGUIDE SIGNATUREOFDIRECTORGENERAL
DATE: DATE:

ACKNOWLEDGEMENT
A project report is an assessment of one’s great skill and aptitude. One needs to
devote in immense patience, time and brains for the compilation of one such
rewarding outcome of true efforts.
I am indeed thankful to honorable Director General ( G.L. Bajaj Institute of
management & Research) Dr. URAVASHI MAKKAR who has provided the
wonderful opportunity of getting exposed to industrial and business working know –
how. This study enabled me to analyze and understand the portfolio management and
investment scenario in Indian Financial Market.
I would like to render my sincere heart full gratitude to my Dissertation Guide
MR. ATUL KUMAR ARORA for guiding me right from the inception till the
completion of the report. I sincerely acknowledge him for extending his valuable
guidance, support for literature, critical reviews of the project and above all the moral
support provided to me in all stages of this report. He has been an inspirational
mentor guiding me through every step of my project, thus making the entire
Dissertation a complete learning process.
Never the last I would take the opportunity to thank SIR AJAY PATEL
(Associate Professor-GLBIMR), SIR ANAND KUMAR RAI (Assistant Professor-
GLBIMR), for providing me necessary and relevant information throughout my
dissertation report. A word of thanks to the respondent, faculty member and referrals
for their invaluable time and being a part of the survey.
Thanking You
SUDIP KAUSHAL
GM 16154
GL BAJAJ INSTITUTE OF MANAGEMENT AND RESEARCH

Table of Contents
CHAPTERS Page
CHAPTER - I
1.1) Introduction……………………………………………………………. 1-2
1.2) Meaning of investment…………………………………………………..3
1.2.1) Economic Investment……………………………………….…3
1.2.2) Financial Investment…………………………………………..3
1.3) Portfolio Management Process…………………………………………4
1.4) Element of Investment…………………………………………………..4
1.5) Investment Attributes……………………………………………………5
1.6) Investment Portfolio Alternatives……………………………………...5-14
1.7) Introduction of Portfolio…………………………………………….…15
1.7.1) Objectives of Portfolio Management………………………….15
1.7.2) Construction of Portfolio……………………………………....16
1.7.3) Role of Portfolio Manager……………………………………...17
1.7.4) Formulating the Portfolio Objectives………………………….18
1.8) terminology………………………………………………………………..19-22
CHAPTER – II
2.1) Literature Review………………………………………………….……..23-32
CHAPTER – III
3.1) Need of the study……………………………………………………..……33
3.2) Objectives of the study…………………………………………………….34
3.3) Hypothesis……………………………………………………………….…34
3.4) Scope of the study ………………………………………………………...34

3.5) Research Methodology……………………………………………………35
3.6) Data Collection Tools……………………………………………………..35
3.7) Sample Design………………………………………………………….…36
3.8) Data Analysis tools and plans …………………………………………...37
3.9) Limitations of the study …………………………………….……………37
CHAPTER – IV
Data Analysis and Interpretation……………………………………..……..38-49
CHAPTER – V
5.1) Summary of finding……………………………………………….…….50-51
5.2) Conclusions ……………………………………………………….……..52
5.3) Suggestions………………………………………………………….……53
ANNEXTURE………………………………………………………………..54-57

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CHAPTER – I
INTRODUCTION
1.1) INTRODUCTION
For most of the investors throughout their life, they will be earning and
spending money. Rarely, investor’s current money income exactly balances
with their consumption desires. Sometimes, investors may have more money
than they want to spend; at other times, they may want to purchase more than
they can afford. These imbalances will lead investors either to borrow or to
save to maximize the long-run benefits from their income.
When current income exceeds current consumption desires, people tend to save
the excess. They can do any of several things with these savings. One
possibility is to put the money under a mattress or bury it in the backyard until
some future time when consumption desires exceed current income. When they
retrieve their savings from the mattress or backyard, they have the same
amount they saved.
Another possibility is that they can give up the immediate possession of these
savings for a future larger amount of money that will be available for future
consumption. This trade off of present consumption for a higher level of future
consumption is the reason for saving. What investor does with the savings to
make them increase over time is investment. In contrast, when current income
is less than current consumption desires, people borrow to make up the
difference.
An investment is the current commitment of rupee for a period of time in order
to derive future payments that will compensate the investor for
(1) The time the funds are committed,
(2) The expected rate of inflation, and
(3) The uncertainty of the future payments.

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The “Investor” can be an individual, a government, a pension fund, or a
company. Similarly, this definition includes all types of investments, including
investments by organization in plant and equipment and investments by
individuals in stocks, bonds, commodities, or real estate. This study
emphasizes investments by individual investors. In all cases, the investor is
trading a known rupee amount today for some expected future stream of
payments that will be greater than the current outlay.
Definition of Individual investor: “An individual who purchases small
amounts of securities for themselves, as opposed to an institutional investor,
also called as Retail Investor or Small Investor.”
At this point, researcher has answered the questions about why people invest
and what they want from their investments. They invest to earn a return from
savings due to their deferred consumption. They want a rate of return that
compensates them for the time, the expected rate of inflation, and the
uncertainty of the return.
In today’s world everybody is running for money and it is considered as a root
of happiness. For secure life and for bright future people start investing. Every
time investors are confused with investment avenues and their risk return
profile. So, even if researcher focuses on past, present or future, investment
management is such a topic that needs constant upgradation as economy
changes. The research study will be helpful for the investors to choose proper
investment opportunity and to create gainful investment portfolio.

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1.2) MEANING OF INVESTMENT
Investment is the employ of funds with the aim of getting return on it. In
general terms, investment means the use of money in the hope of making more
money. In finance, investment means the purchase of a financial product or
other item of value with an expectation of favorable future returns.
Investment of hard earned money is a crucial activity of every human being.
Investment is the promise of funds which have been saved from current
spending with the hope that some benefits will be received in future. Thus, it is
a reward for waiting for money. Savings of the people are invested in assets
depending on their risk and return demands.
Investment refers to the concept of deferred consumption, which involves
purchasing an asset, giving a loan or keeping funds in a bank account with the
aim of generating future returns. Various investment options are available,
offering differing risk-reward tradeoffs. An understanding of the core concepts
and a systematic analysis of the options can help an investor create a portfolio
that maximizes returns while minimizing risk exposure.
There are two concepts of Investment:
1.2.1) Economic Investment: The concept of economic
investment means addition to the capital stock of the society. The
capital stock of the society is the goods which are used in the
production of other goods. The term investment implies the
formation of new and productive capital in the form of new
construction and producer’s durable appliance such as plant and
machinery.
1.2.2) Financial Investment: This is an allocation of monetary resources
to assets that are expected to yield some gain or return over a given
period of time. It means an exchange of financial claims such as
shares and bonds, real estate, etc.

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1.3) PORTFOLIO MANAGEMENT PROCESS
1.4) ELEMENTS OF INVESTMENTS
The Elements of Investments are as follows:
a) Return
b) Risk
c) Time
d) Liquidity
e) Tax Saving

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1.5) INVESTMENT ATTRIBUTES
Every investor has certain specific objective to achieve through his long term or
short term investment. Such objectives may be monetary/financial or personal in
character.
The Three financial objectives are:-
1. Safety & Security of the fund invested (Principal amount)
2. Profitability (Through interest, dividend and capital appreciation)
3. Liquidity (Convertibility into cash as and when required)
1.6) INVESTMENT PORTFOLIO ALTERNATIVES
Wide varieties of investment avenues are now available in India. An investor can
himself select the best avenue after studying the merits and demerits of different
avenues. Even financial advertisements, newspaper supplements on financial
matters and investment journals offer guidance to investors in the selection of
suitable investment avenues.
Investment avenues are the outlets of funds. A confusing range of investment
alternatives are available, they fall into two broad categories, viz, financial assets
and real assets. Financial assets are paper (or electronic) claim on some issuer such
as the government or a corporate body.
Investors are free to select any one or more alternative avenues depending
upon their needs. All categories of investors are equally interested in safety,
liquidity and reasonable return on the funds invested by them. In India,
investment alternatives are continuously increasing along with new
developments in the financial market. Investment is now possible in corporate
securities, public provident fund, mutual fund etc. Thus, wide varieties of
investment avenues are now available to the investors. However, the investors
should be very careful about their hard earned money. An investor can select the
best avenue after studying the merits and demerits of the following investment
alternatives:

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1) Shares
2) Debentures and Bonds
3) Public Deposits
4) Bank Deposits
5) Post Office Savings
6) Public Provident Fund (PPF)
7) Money Market Instruments
8) Mutual Fund Schemes
9) Life Insurance Schemes
10) Real Estates
11) Gold-Silver
12) Derivative Instruments
13) Commodity Market (commodities)
For sensible investing, investors should be familiar with the characteristics and
features of various investment alternatives. These are the various investment
avenues; where individual investors can invest their hard earn money.
The following investment avenues are popular and used extensively in India:
1) SHARES
‘Share means a share in the share capital of a company. A company is a business
organization. The shares which are issued by companies are of two types i.e.
Equity shares and Preference shares. It is registered as per Companies Act, 1956.
Every company has share capital. The share capital of a company is divided into
number of equal parts and each of such part is known as a 'share'.
Investors in Mumbai are so familiar to the ups and downs in the stock markets, but
still no one has loosed the confidence over the investment in shares. Even a small
investors keeping long term view in mind, are investing some part of their hard
earn money in shares. Many investors are playing in market on the basis of the

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cash balance or the margin funding allowed by the depository (service provider).
In Mumbai there are two secondary markets they are as follows,
1. Bombay stock exchange (BSE)
2. National stock exchange (NSE)
Investors in Mumbai are playing in both the markets i.e. primary market and
secondary market. Shares constitute the ownership securities and are popular
among the investing class. Investment in shares is risky as well as profitable.
Transactions in shares take place in the primary and secondary markets.
There are two ways in which investment in equities can be made:
i. Through the primary market (by applying for shares that are offered to the
public)
ii. Through the secondary market (by buying shares that are listed on the
stock exchanges)
2) DEBENTURES AND BONDS
A debenture is a document issued by a company as an evidence of a debt. It is
a certificate issued by a company under its seal, acknowledging a debt due by
it to its holders. The term debenture includes debenture stock, bonds and any
other securities issued by a company. The Companies Act provides that a
company can raise loans from the public by issue of debentures.
The companies use owned capital as well as borrowed capital in their
capital structure as compared to equity shares because debenture holders
have no say in the management of the company and interest on debentures
is allowed as a business expense for tax purposes. The debentures are
considered as secured loan.

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3) PUBLIC DEPOSITS
The Companies Act provides that companies can accept deposits directly from
the public. This mode of raising funds has become popular in the 1990s,
because the bank credit had become costlier, In order to meet, temporary
financial needs, companies accept deposits from the investors. Such deposits are
called public deposits or company fixed deposits and are popular particularly
among the middle class investors. All most all companies collect crores of
rupees through such deposits. Companies were offering attractive interest rates
previously. However, the interest rates are now reduced considerably. At
present, the interest rate offered is 9 to 12 per cent.
On maturity, the depositor has to return the deposit receipt (duly discharged)
to the company and the company pays back the deposit amount. The depositor
can renew his deposit for further period of one to three years at his option. Many
companies are now supplementing their fixed deposit scheme by cumulative time
deposit scheme under which the deposited amount along with interest is paid
back in lumpsum on maturity.
At present, along with private sector companies, even public sector companies
and public utilities also accept such deposits in order to meet their working capital
needs. This source is popular and used extensively by the companies.
4) BANK DEPOSITS
Investment of surplus money in bank deposits is quite popular among the
investors (Particularly among salaried people). Banks (Co-operative and
Commercial) collect working capital for their business through deposits called
bank deposits. The deposits are given by the customers for specific period and the
bank pays interest on them. In India, all types of banks accept deposits by
offering interest. The deposits can be accepted from individuals, institutions and
even business enterprises, the business and profitability of banks depend on
deposit collection. For depositing money in the bank, an investor/depositor has to
open an account in a bank.

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Different types of deposit accounts are:
1. Current Account
2. Savings BankAccount
3. Fixed Deposit Account, and
4. Recurring Deposit Account
The rate of interest for Fixed Deposits (FD) differs from bank to bank unlike
previously when the same were regulated by RBI and all banks used to have the
same interest rate structure. The present trends indicate that private sector and
foreign banks offer higher rate of interest. Usually a bank FD is paid in lump sum
on the date of maturity. However, some banks have facility to pay interest at the
end of every quarter. If one desires to get interest paid every month, then the
interest paid will be at a discounted rate. The Interest payable on Fixed Deposit
can also be transferred to Savings Bank or Current Account of the customer.
5) POST OFFICE SAVINGS
Post office operates as a financial institution. It collects small savings of the
people through savings bank accounts facility. In addition, time deposits and
government loans are also collected through post offices. Certain government
securities such as Kisan Vikas Patras, National Saving Certificates, etc. are
sold through post offices. New schemes are regularly introduced by the Postal
Department in order to collect savings of the people. This includes recurring
deposits, monthly income scheme, PPF and so on.
Postal savings bank schemes were popular in India for a long period as banking
facilities were limited and were available mainly in the urban areas upto 1950s.
The popularity of postal savings schemes is now reducing due to the growth of
banking and other investment facilities throughout the country..

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6) MONEY MARKET INSTRUMENTS
Money market is a centre in which financial institutions join together for the
purpose of dealing in financial or monetary assets, which may be of short term
maturity. The short term generally means a period upto one year and the
term near substitutes to money denotes any financial asset which may be
quickly converted into money with minimum transaction cost.
Thus, money market is a market for short term financial instruments, maturity
period of which is less than a year. The deals are over the counter. The
numbers of players in the market are limited. It is regulated by Reserve Bank
of India. Money Market Instruments where Investors can invest are Treasury
bills, Certificate of Deposit, Commercial Paper, Repurchase Options (Repo),
Money Market Mutual Funds (MMMFs).
7) MUTUAL FUNDS
Mutual fund is a financial intermediary which collects savings of the people
for secured and profitable investment. The main function of mutual fund is to
mobilize the savings of the general public and invest them in stock market
securities. The entire income of mutual fund is distributed among the
investors in proportion to their investments- Expenses for managing the fund
are charged to the fund, like mutual funds in India are registered as trusts under
the Indian Trust Act.
UTI had virtual monopoly in the field of mutual fund from 1964 to 1987. After
1987, State Bank of India, Bank of India and other banks started their mutual
funds. After 1991 (due to economic liberalisation) many financial institutions
started their mutual funds (e.g. Kothari Pioneer Fund, DSP Black Rock, ICICI
Prudential Mutual Fund, CRB Capital Markets and so on. A mutual fund is
formed by the coming together of a number of investors who hand over
their surplus funds to a professional organisation to manage their funds.

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The main function of mutual fund is to mobilise the savings of the general public
and invest them in stock market and debt market securities. At present, there is
diversion of savings of the middle class investors from banks to mutual
Basically, there are four schemes by which mutual funds collect money from
the investors such as (1) Growth Schemes (2) Income Schemes (3)Balanced
Schemes (4) Tax Saving Schemes. In case of growth schemes the investment
grows according to the time and in case of income schemes the investors get
regular income from the investments. Balanced schemes are the combination of
both these schemes. Tax saving scheme is designed to save income tax while
investing in the market. There are different types of investors and their
objectives are also different. Therefore, mutual funds have started different
schemes in order to suit the objectives of these investors.
Now a days, investors are creating their mutual fund portfolios on the basis of the
nature of mutual funds i.e. instead of categorizing the mutual funds in different
types (as given above) investors mainly focus on the following categories which
simple to understand and the schemes itself explains the risk factor associated with
the particular category.
1. Equity mutual funds
2. Debt mutual funds
3. Balanced (Hybrid) Funds
8) LIFE INSURANCE POLICIES
Nothing is more important to a person than the feeling that their family is
financially secure - at all times. “Life insurance is a contract whereby the
insurer, in consideration of a premium paid either in a lump sum or in
periodical installments undertakes to pay an annuity or certain sum of money
either on the death of the insured or on the expiry of a certain number of years,
whichever is earlier.”
Insurance Regulatory and Development Authority (IRDA) is the regulatory arm of
the government of India which oversees the proper functioning of the insurance
sector.

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Life insurance is a kind of Investment Avenue provides family protection to the
investor as well as return on investment in the form of yearly bonus on the policy.
The return on investment is reasonably low i.e. 6% p.a. because of risk coverage
and tax incentives. The amount of premium paid on a life insurance policy is
exempted from taxable income under section 80-C of the Income-tax Act. Though,
the maturity period is longer the insurance policy can be surrendered or loan can
be availed on the policy, therefore there is some sort of liquidity in this
investment. Thus, investment in life insurance is a profitable investment and there
is no risk in this investment.

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9) INVESTMENT IN REAL ESTATES
Investment in real estate includes properties like building, industrial land,
plantations, farm houses, agricultural land near cities and flats or houses. Such
properties attract the attention of affluent investors. It is an attractive, as well as
profitable investment avenue today. A residential building represents the most
attractive real estate property for majority of investors. The prices of real estate are
increasing day by day. The land is limited on the earth but the population has been
increasing. As the demand increases but the supply of land is limited, the prices tend
to increase. Therefore, it is attractive investment which generates higher return during
a short period of time.
10)INVESTMENT IN GOLD ANDSILVER
Gold and silver are the precious objects. Everybody likes gold and hence requires
gold or silver. These two precious metals are used for making ornaments and also for
investment of surplus funds over a long period of time
The prices of gold and silver are also increasing continuously. The prices also depend
upon demand and supply of gold. The supply has been increasing at low speed.
However, the demand has been increasing very fast. Therefore, the prices also go on
increasing
11)DERIVATIVE INSTRUMENTS
A derivative is a product whose value is derived from the value of an underlying asset,
index or reference rate. The underlying asset can be equity, forex, commodity or any
other asset. For example, if the settlement price of a derivative is based on the stock
price of a stock for e.g.
Tata Steel which frequently changes on a daily basis, then the derivative risks are also
changing on a daily basis. This means that derivative risks and positions must be
monitored continuously. A derivative security can be defined as a security whose

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value depends on the values of other underlying variables. Very often, the variables
underlying the derivative securities are the prices of traded securities.
Derivatives are of four types, (1) Forward (2) Futures (3) Options and (4) Swaps. From the
point of view of investors and portfolio managers, futures and options are the two most
important financial derivatives. They are used for hedging and speculation. Trading in these
derivatives has begun in India. The difference between a share and derivative is that
shares/securities are an asset while derivative instrument is a contract.
12) COMMODITIES
A commodity may be defined as a product or material or any physical substance like
food grains, processed products and agro-based products, metals or currencies, which
investors can trade in the commodity market. One of the characteristics of a
commodity is that its price is determined as a function of its market as a whole. Well-
established physical commodities are actively traded in spot and derivative
commodity market.
India has around 25 recognised commodity future exchanges including three national-
level commodity exchanges. They are:
1. National Commodity & Derivatives Exchange Limited (NCDEX)
2. Multi Commodity Exchange of India Limited (MCX)
3. National Multi-Commodity Exchange of India Limited (NMCE)
All these exchanges are under the control of the Forward Market Commission (FMC)
of Government of India.

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1.7) INTRODUCTION OF PORTFOLIO
“Portfolio means combined holding of many kinds of financial securities i.e. shares,
debentures, government bonds, units and other financial assets.” The term investment
portfolio refers to the various assets of an investor which are to be considered as a
unit. It is not merely a collection of unrelated assets but a carefully blended asset
combination within a unified framework. It is necessary for investors to take all
decisions as regards their wealth position in a context of portfolio. Making a portfolio
means putting ones eggs in different baskets with varying element of risk and return.
The object of portfolio is to reduce risk by diversification and maximise gains.
Thus, portfolio is a combination of various instruments of investment. It is also a
combination of securities with different risk-return characteristics. A portfolio is built
up out of the wealth or income of the investor over a period of time with a view to
manage the risk-return preferences. The analysis of risk-return characteristics of
individual securities in the portfolio is made from time to time and changed that may
take place in combination with other securities are adjusted accordingly. The object of
portfolio is to reduce risk by diversification and maximize gains.
1.7.1) OBJECTIVES OF PORTFOLIO MANAGEMENT
1) Security/Safety of Principal
2) Stability of Income:
3) Capital Growth
4) Marketability
5) Liquidity i.e. nearness to money
6) Diversification
7) Favorable Tax status (Tax Incentives)

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1.7.2) CONSTRUCTION OF PORTFOLIO:
Portfolio construction means determining the actual composition of portfolio. It
refers to the allocation of funds among a variety of financial assets open for
investment. Portfolio theory concerns itself with the principles governing such
allocation. Therefore, the objective of the theory is to elaborate the principles in
which the risk can be minimized subject to a desired level of return on the portfolio or
maximize the return subject to the constraints of a certain level of risk. The portfolio
manager has to set out all the alternative investments along with their projected return
and risk, and choose investments which satisfy the requirements of the investor and
cater to his preferences.
It is a critical stage because asset mix is the single most determinant of
portfolio performance. Portfolio construction requires knowledge of the different
aspects of securities. The components of portfolio construction are:
a) Asset allocation
b) Security selection and
c) Portfolio structure.
Asset allocation means setting the asset mix. Security selection involves choosing the
appropriate security to meet the portfolio targets and portfolio structure involves
setting the amount of each security to be included in the portfolio.
Investing in securities presupposes risk. A common way of reducing risk is to
follow the principle of diversification. Diversification is investing in a number of
different securities rather than concentrating in one or two securities. The
diversification assures the benefit of obtaining the anticipated return on the portfolio of
securities. In a diversified portfolio, some securities may not perform as expected but
other securities may exceed expectations with the effect that the actual results of the
portfolio will be reasonably close to the anticipated results.

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1.7.3) ROLE OF PORTFOLIO MANAGER
A portfolio manager is a person who makes investment decisions using money other
people have placed under his or her control. In other words, it is a financial career
involved in investment management. They work with a team of analysts and
researchers, and are ultimately responsible for establishing an investment strategy,
selecting appropriate investments and allocating each investment properly for a fund-
or asset-management vehicle.
Portfolio managers are presented with investment ideas from internal buy-side
analysts and sell-side analysts from investment banks. It is their job to sift through the
relevant information and use their judgment to buy and sell securities. Throughout
each day, they read reports, talk to company managers and monitor industry
and economic trends looking for the right company and time to invest the portfolio's
capital.
A professional, who manages other people's or institution's investment portfolio with
the object of profitability, growth and risk minimization, is known as a portfolio
manager. They are expected to manage the investor's assets prudently and choose
particular investment avenues appropriate for particular times aiming at maximization
of profit.
The role of portfolio manager includes the following,
1. Quantify their clients’ risk tolerances and return needs by taking into
account his liquidity, income, time horizon, expectations
2. Do an optimal asset allocation and choose strategy that meets the client’s
needs
3. Diversify the portfolio to eliminate the unsystematic risk
4. Monitor the changing market scenario, expectations, client needs etc and
rebalance accordingly
5. Lower the transaction cost by minimizing the taxes, trading turnover, and
liquidity costs.

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1.7.4) FORMULATING THE PORTFOLIO OBJECTIVES
The portfolio objectives can be determined by ascertaining the constraints on
portfolio. The greater the number of constraints and the more binding these
constraints, more conservative the portfolio must be. The following are the six
possible portfolio constraints which are evaluated to determine the appropriate
objectives:
1. Need for current income to meet the living expenses.
2. Need for constant income to face inflation.
3. Need for safety principal to liquidate the investments on a short notice.
4. Need for safety principal to reduce the effect of purchasing power.
5. Need for tax exemption.
6. Temperament

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1.8) TERMINOLOGY
a) BETA
Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market as a whole. Beta is used in the capital asset pricing
model (CAPM), which calculates the expected return of an asset based on its beta and
expected market returns. Beta is also known as the beta coefficient.
A beta of 1 indicates that the security's price moves with the market. A beta of less
than 1 means that the security is theoretically less volatile than the market. A beta of
greater than 1 indicates that the security's price is theoretically more volatile than the
market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than
the market. Conversely, if an ETF's beta is 0.65, it is theoretically 35% less volatile
than the market. Therefore, the fund's excess return is expected to underperform the
benchmark by 35% in up markets and outperform by 35% during down markets.
b) STANDARD DEVIATION
Standard deviation is a measure of the dispersion of a set of data from its mean. It is
calculated as the square root of variance by determining the variation between each
data point relative to the mean. If the data points are further from the mean, there is
higher deviation within the data set.
In finance, standard deviation is a statistical measurement; when applied to the
annual rate of return of an investment, it sheds light on the historical volatility of that
investment. The greater the standard deviation of a security, the greater the variance
between each price and the mean, indicating a larger price range. For example, a
volatile stock has a high standard deviation, while the deviation of a stable blue-chip
stock is usually rather low.

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c) VALUE AT RISK – ‘VAR’
Value at risk (VaR) is a statistical technique used to measure and quantify the level
of financial risk within a firm or investment portfolio over a specific time frame. This
metric is most commonly used by investment and commercial banks to determine the
extent and occurrence ratio of potential losses in their institutional portfolios. VaR
calculations can be applied to specific positions or portfolios as a whole or to measure
firm-wide risk exposure.
Investment banks commonly apply VaR modeling to firm-wide risk due to the
potential for independent trading desks to expose the firm to highly correlated assets
unintentionally. Employing a firm-wide VaR assessment allows for the determination
of the cumulative risks from aggregated positions held by different trading desks and
departments within the institution.
d) HARRY MARKOWITZ'
A Nobel Memorial Prize winning economist who devised the modern portfolio
theory in 1952. Markowitz's theories emphasized the importance of portfolios, risk,
the correlations between securities and diversification. His work changed the way that
people invested.
Prior to Markowitz's theories, emphasis was placed on picking single high-yield
stocks without any regard to their effects on portfolios as a whole. Markowitz's
portfolio theory would be a large stepping stone towards the creation of the capital
asset pricing model.
e) WILLIAM F. SHARPE'
An American economist who won the 1990 Nobel Prize in Economics, along
with Harry Markowitz and Merton Miller, for developing models to assist with
investment decision making. Sharpe's capital asset pricing model

21
(CAPM) calculates expected returns based on varied levels of risk and states that
taking on more risk is necessary to earn a higher return. Corporations, institutions
and pension fund managers have all used CAPM theory to manage risk.
f) SORTINO RATIO
The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio,
or strategy. It is a modification of the Sharpe ratio but penalizes only those returns
falling below a user-specified target or required rate of return, while the Sharpe ratio
penalizes both upside and downside volatility equally.
The Sortino ratio is used as a way to compare the risk-adjusted performance of
programs with differing risk and return profiles. In general, risk-adjusted returns seek
to normalize the risk across programs and then see which has the higher return unit
per risk
g) TREYNOR INDEX
A measure of risk-adjusted performance of an investment portfolio. The Treynor
Index measures a portfolio's excess return per unit of risk, using beta as the risk
measure; the higher this number, the greater "excess return" being generated by the
portfolio. The index was developed by economist Jack Treynor.
h) JENSEN'S MEASURE
The Jensen's measure is a risk-adjusted performance measure that represents
the average return on a portfolio or investment above or below that predicted by
the capital asset pricing model (CAPM) given the portfolio's or investment's beta and
the average market return. This metric is also commonly referred to as Jensen's alpha,
or simply alpha.
i) SHARPE RATIO

22
The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of
volatility or total risk. Subtracting the risk-free rate from the mean return, the
performance associated with risk-taking activities can be isolated. One intuition of
this calculation is that a portfolio engaging in “zero risk” investment, such as the
purchase of U.S. Treasury bills (for which the expected return is the risk-free rate),
has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio,
the more attractive the risk-adjusted return.

23
CHAPTER – II
LITERATURE REVIEW
2.1) LITERATURE REVIEW
The thematic of risk management techniques is not new, but it is recent and not very
studied in portfolio and investment management, the risk is present in many activities
including the investment, project, business. Therefore the managers need to make a
great deal of effort to identify and manage risks and use relevant techniques to
measure and control risk.
he word “risk” means that uncertainty can be expressed through probability. Standard
Deviation, the oldest risk measurement technique was first introduced by Markowitz,
1952- in his formulation of the portfolio selection problem. In the mean–variance
framework and its successor, the capital asset pricing model (CAPM) also introduced.
Baldoni, 1998; Harrington and Niehaus, 1999 defines in his paper “In managing
risk, commercial banks can follow comprehensive risk management process which
includes eight steps: exposure identification; data gathering and risk quantification;
management objectives; product and control guidelines; risk management evaluation;
strategy development; implementation; and performance evaluation.”
Bouchaud and Potters, 2000, “Theory of financial explains that the risk control
has become the main concerns of financial institutions. They require for sufficient
arithmetical tools to compute and foresee the amplitude of the probable moves of
financial markets is visibly expressed, in exacting for derivative markets, however,
classical theories are based on easy assumptions such as Gaussian statistics and lead
to a regular dryness of real risks.”.

24
Anthony Carey; 2001, present “Risk management is important in financial
institution than in other parts of the nation. Although its complex. The banking
sectors and other similar financial institutions is facing risk in situation of uncertainty.
It provides guide in which the multiple Turnbull ideas have become the foundation of
risk management and suggests how they can be develop”.
Gupta L.C. & Jain in their article “The Changing Investment Preferences of
Indian Households” survey 2008, conducted by society for capital market research
and development, new Delhi. Pointed out that ‘too much volatility’, ‘too much price
manipulation’, ‘unfair practices of brokers’ and ‘corporate mismanagement and
frauds’ as the main worries of investors.
Alviniussen, A. & Jankensgard, H. (2009), Enterprise Risk Budgeting:
Bringing Risk Management into the Financial Planning Process. Journal of Applied
Finance, 19(2), 178-192
R. L. Narayanan in his article “Concern for Retail Investors in Rising
Markets: Trade Cautiously” published in Dalal street Investment journal, 24 April
2011 concluded that Though the Indian market is among the leaders in the emerging
market pack, the current year is not good for the emerging markets. A concern about
high inflation and high interest rates is palpable in most markets and India is no
exception. As the markets have rallied back sharply from the lows of the year, invest
cautiously as opportunities will always be there, though valuation and macro factor
remain a concern. When the markets are rising retail investors should be careful about
spiraling crude prices, interest costs and inflation, since all the four cannot rise
simultaneously.

25
Petit (2012) investigates how uncertainty affects investment portfolios in dynamic
environments. Juliane Teller, Alexander Kock, 2014, suggest that both risk
transparency and risk coping capacity have a direct impact on project portfolio
success.
According to the Research Report of Johan Cheristian of California, (2007), In this
thesis the mechanics of active portfolio management was addressed based upon the
motivation that an investor attempts to outperform a benchmark, the MSCI Denmark.
Chapter 1 to 4 established the investment strategy which involved the determination
of a strategic long-term investment opportunity set and conducting tactical short-term
asset allocation by means of Markowitz’ mean variance portfolio model. The model
was applied each quarter from 1992 to 2011. The asset allocation was conditional on
return and covariance estimations. Two portfolios were constructed: one portfolio
upon which was imposed a restriction of maximum 20% representation of investment
opportunities.
According to the Nguyen Thanh Liem, Lapland University of Applied Science,
(2014-2015), These components are the basic or fundamental index that the investors
always bear in mind before making any the investment decisions. Through these
components, investor can know how much they are able to get in the fixed periods or
in the future and the level possibility of loss by uncertainty effects. Return includes
historical return (ex-post) and expected return (ex-ante) and these types of return can
be utilized depending on the purpose of user. There are variety of risks categorized
into 2 main types regarding of systematic risks and unsystematic risk. The systematic
risk is not affected by diversification but the unsystematic risk can be diversified. Due
to the nature of this thesis, these kinds of risk are not fully captured.
According to the Report of Sandeep Mukharjee, IIM Lucknow, (2012), All assets in
this world have some economic value and some amount of risk carrying with them.
All assets have some expected life also and if it’s get lost or destroyed there are many
chances that owner will suffer some amount of loss which can be financial or in any
other form. So to protect the owner from suffering a huge amount of loss we can
assure these assets.

26
Insurance is a contract between the insurer and insured in return for a premium, the
insurance company promises to pay a specified amount to the insured on the
happening of a specific event.
India economy is growing at the rate of 5.4% with a significant rise in working
population and has a large potential for the development in the field of insurance
sector. A large amount of population in India is still uninsured. It is also estimated
that the sector will grow at a rate of 15-20% in next 10 years.
The project has been undertaken to know about different types of risk that can
covered by insurance policies and how to analyse and mange those risks as there are
various types of risk that a person can suffers in his life term.
The project talks about what are the various things that customer should consider
before buying an insurance policy and various steps that need to consider before
buying it.
Enterprise risk management (ERM): a process applied across the enterprise, designed
to identify potential events that may affect the organization, and manage risk
(strategic, market, financial, human, technological and operational risks) to be within
its risk tolerance, to provide reasonable assurance for achieving enterprise objectives
(COSO, 2004).
Insurance risk management (IRM): a pure risk management process in a firm (where
pure risk can be of environmental, social, personal and technological types), based on
the observation of damaging events that have already occurred, the application of a
premium and the subjective assessment based on the assessor’s experiences and
competencies (Gahin, 1967).
Project risk management (PRM): a process integrated into the project’s life cycle,

27
which involves defining objectives, identifying sources of uncertainty, analyzing
these uncertainties and formulating managerial responses to develop an acceptable
balance between risks and opportunities (Thevendran and Mawdesley, 2004)
Project risks can be of technical, operational, organizational, contractual, financial,
economic and political types. Engineering risk management (EnRM): a complex and
continuous process that involves managing the planning, design, operation and
evolution of an engineering system. This is aimed to identify and choose appropriate
responses to problems related to different risk factors (technical/operational risks)
through the use of a systemic and proactive approach (Regan and Patè-Cornell, 1997).
Supply chain risk management (ScRM): a shared RM process, developed in
collaboration with the partners in the entire supply chain, to deal with the risks
(logistics, financial, information, relationships and innovation risks) and uncertainties
resulting from logistic activities and resources (Norman and Lindroth, 2002). With
the diffusion of the open innovation phenomenon (Petroni et al., 2012), many
companies are building strong supply chain partnerships with business partners, such
as manufacturers, distributors, suppliers and customers, and consequently risks
deriving from these relationships have to be managed carefully.
“Risk management framework is important for financial institutions like banks.
Insurance companies, investment fund and loan companies. In conjunction with the
underlying frameworks, basic risk management process that is generally accepted is
the practice of identifying, analyzing, measuring, and defining the desired risk level
through risk control and risk transfer. BCBS (2001) defines financial risk
management as a sequence of four processes: (1) the identification of events into one
or more broad categories of market, credit, operational and other risks into specific
sub-categories; (2) the assessment of risks using data and risk model; (3) the
monitoring and reporting of the risk assessments on a timely basis; and (4) the control
of these risks by senior management. BCBS (2006), on risk management processes,
require supervisors to be satisfied that the banks and their banking groups have in
place a inclusive risk management process. This would include the Board and senior
management to identify, assess, examine and manage or mitigate all material risks

28
and to assess their general capital adequacy in relation to their risk profile. In
addition, as suggested by Al-Tamimi (2002), in managing risk, commercial banks can
follow comprehensive risk management process which includes eight steps: exposure
identification; data gathering and risk quantification; management objectives; product
and control guidelines; risk management evaluation; strategy development;
implementation; and performance evaluation (e.g. Baldoni, 1998; Harrington and
Niehaus, 1999).
A comprehensive explanation of risk management in Islamic banking are made by
Akkizidis and Khandelwal (2008) covering the aspect of risk management issues in
Islamic financial contracts, Basel II and Islamic Financial Services Board (IFSB) for
Islamic financial risk, and examining the credit, market and operational risk
management for IBs. They also explain the unique mixes or risk for each financial
contracts in IBs. Moreover, Iqbal and Mirarkhor (2007) explain that the context of
risk management in IBs covering the aspect of the needs for risk measurement,
management and controls in IBs and highlight the comprehensive risk management
framework for each unique risk with the references of IFSB standards. Greuning and
Iqbal (2007) discuss the three major modification of theoretical balance sheet of an
Islamic bank that has implications on the overall risk free of the banking
environment. Apart from that, the contractual role of various stakeholders in relation
to risk is also been highlighted.

29
According to IFSB, the primary aim of releasing its risk management standard stems
from the recognition that although “certain issues are of equal concern to all financial
institutions” (IFSB, 2005) some risks are localized to IBs and as such, these
principles “serve to complement the BCBS guidelines in order to cater the
specificities of IBs” (IFSB, 2005). In addressing the various forms of risk that IBs are
exposed to, the guiding principles set forth the methodologies required in order to
balance concerns between both the internationally agreed standards of the BCBS and
Shari'ah compliance issues that are fundamental to the operation of these specialized
institutions.
In general, according to IFSB (2005), IBs shall have in place a complete risk
management and treatment process, including proper board and senior management
oversight, to recognize, measure, observe, report and control related categories of
risks and, where suitable, to hold sufficient capital against these risks. The process
shall take into account appropriate steps to comply with Shari'ah rules and principles
and to ensure the adequacy of relevant risk reporting to the supervisory authority
“Theory of financial explains that the risk control has become the main concerns of
financial institutions. They require for sufficient arithmetical tools to compute and
foresee the amplitude of the probable moves of financial markets is visibly expressed,
in exacting for derivative markets., however, classical theories are based on easy
assumptions such as Gaussian statistics and lead to a regular dryness of real
risks.”(Bouchaud and Potters 2000)
“This article guide to take financial risk management decisions. Theis is based on two
important principles, a "Sharpe rule" assess prospective changes in a in fianacial
sector and portfolio's expected risk of return profile and the imporvement of a
constant chances of default, that evaluate the financial sector or portfolio's leverage.
Rules can not be restricted to thel return distributions; they are also collected a variety

30
of abnormal distributions. This approach could be applied with value at risk as the
measure of risk or portfolio standard deviation”.(Dowd 1999)
“This article explain the use of credit derivatives by corporate treasurers. Financial
Corporations have in recent years, become grown with the idea of using traditional
derivative products to hedge their exposure. e.g, foreign exchange risk. Credit risk,
interest rate and on the other side, has to approve a more difficult tame. And avenues
for the credit risk management do exist, e.g, the use of traditional insurance products
and (LOC) letters of credit, that means are not always be convenient”.(Freeman, Cox
et al. 2006)
“This article represent that the most of Firms and the financial institutions are good
viewed as ongoing entities, whose required renewed injections of liquidity. This
artical suggest a contract theoretic framework. That represent three dimensions of
prudential regulation and corporate financing”.
CAS or Casualty Actuarial Society (2003) defines Enterprise Risk Management as
disciplines by which an organization in any industry assesses, controls, exploits,
finances, and monitors risks from all sources for the purposes of increasing the
organization’s short- and long-term value to its stakeholders. Lam (2000) on the other
hand, defines Enterprise Risk Management as an integrated framework for managing
credit risk, market risk, operational risk, economic capital, and risk transfer in order
to maximize firm value. Makomaski (2008) defines Enterprise Risk Management as a
decision-making discipline that addresses variation in company goals. Alviunessen
and Jankensgård (2009) point out that Enterprise Risk
Management is concerned about a holistic, company-wide approach in managing
risks, and centralized the information according to the risk exposures. They use the
term ―Risk Universe‖, which is the risk that might impact on the future cash flow,
profitability and continued existence of a company. In other words, risk universe is
risk that could affect the entity of the company. If risk universe can be identified, the
next step is to take an appropriate action such as risk mapping process, accessing the

31
likelihood and impact and curb the risk based on the organizations’ objective.
Anderson (2008) presented the objectives of the portfolio management as: define
goals and objectives, make trade-offs, manage risks, monitor portfolio performance,
and achieve the organization´s objectives. Complementary, to achieve its objectives,
the portfolio management has three main steps: strategic considerations, individual
project evaluation, and portfolio selection (Gabriel et al, 2006).
The risk management is also a concern in the portfolio management due to the
portfolio´s risk should be appropriate due to the portfolio´s financial return (Pereira
and Veloso, 2009). The public administration is different from the private sector and
this differentiation has impacts in the public sector’s objectives that, among others,
are: maximize the innovation, maximize the number of direct beneficiaries and
maximize the number of agents indirectly benefited (Duarte and Reis, 2006).
Another difference, according to Stentoft et al (2015), is that the services provided by
the public sector to citizens are done without a direct payment. In the same way,
Baker and Solak (2014) defined the portfolio success in the public sector as the
maximization of the expected social utility. On the other hand, Scheinberg and
Stretton (1994) stipulated that the main parameters to measure the portfolio’s success
in the public sector are defined by the political authorities or contracts made with
partners.
In the early 1980s, the public sector initiate a reform that is known as New Public
Management (NPM). The NPM is important because it made that the public sector
adopted management techniques from the private sector in order to improve the
public service’s efficiency and results (Young et al, 2012). The project portfolio
management is one of the private sector techniques that were adopted by the public
sector
Private and public organizations aim to grow, and, for this, is necessary to coordinate
changes and the organization's strategy. Projects are responsible for organizational
changes and the strategies’ implementation are done through the projects execution
(Rwelamila and Purushottam, 2012). Lee et al (2008) defined a project portfolio as a

32
set of projects that will be implemented within a central coordination. The portfolio
management conducts the projects of an organization to ensure that the right set of
projects will be done through the allocation of the necessary resources to them. The
project selection and resources’ allocation must be reviewed and amended
periodically to reduce project costs, minimize the risks to which the organization is
exposed and optimize benefits the proper projects’ execution (Dettbarn Jr. et al,
2005). Furthermore, the portfolio is a way to keep the organization focus on the long
term (Munson and Spivey, 2006), making the long term clearer for the organization
(Miller and Evje, 1999).

33
CHAPTER - III
OBJECTIVES & RESEARCH METHODOLOGY
3.1) NEED FOR THE STUDY
Risk Analysis and Risk Management has got much importance in the Indian
Economy during this liberalization period. The foremost among the challenges faced
by the financial sector today is the challenge of understanding and managing the risk.
The very nature of the financial business is having the threat of risk imbibed in it.
Financial institutions' main role is intermediation between those having resources and
those requiring returns. For management of risk in portfolio and investment, various
risks like interest rate risk, liquidity risk or market risk have to be converted into one
composite measure. Therefore, it is necessary that measurement of interest rate risk
should be in tandem with other measurements of liquidity and market risk so that the
requisite composite estimate can be worked out. So, focusing on investor and
organizational, knowledge identification of different risk management techniques is
being most important. Therefore, the overall purpose of the research is “to investigate
risk management techniques in investment and portfolio management.”

34
3.2) OBJECTIVES OF THE STUDY
As my interest is in the Portfolio and Investment Management but it is hard to cover
the whole area and that is the reason I select Risk Management Techniques in
Portfolio and investment management.
 To understand the whole process of portfolio and investment management.
 To get to know the contemporary trends and issues in designing portfolio.
 To identify the portfolio and investment calculation techniques that has to be
used and followed by the employee of the organizations.
3.3) HYPOTHESIS
The hypothesis for the study is as follows:-
Ho – There is correlation between rate of return and risk of the investment.
H1 – There is correlation between rate of return and risk of the investment.
3.4) SCOPE OF THE STUDY
My research paper will investigate risk analysis and risk management techniques in
selected financial organizations in Delhi NCR. Risk Management is one of the major
problems in financial sector. Therefore I wanted to show the method and techniques
that are used to manage the different types of risk associated in investment which can
be further used by the investor and financial organization to understand in detail.

35
3.5) RESEARCH METHODOLOGY
Qualitative research refers to the meanings, definitions, characteristics, symbols,
images, and description of things. So my research paper will more focus on
Qualitative research on which I will collect, analyze and interpret data by observing
what people say. As my topic deals with the description of the risk management
techniques and what is the current scenario of those techniques in the organization
and which technique is more beneficial in respective sector. It is a type of surveys and
studies that aim to identify the facts. So I will use Descriptive Research for my
dissertation report.
3.6) DATA COLLECTION TOOLS
Here, both Primary and Secondary data were considered.
Primary Data were gathered using questionnaire as a tool for data collection.
The data was collected through personal contact one by one massaging, and email
with the help of a well designed structured and pretested questionnaire. The
questionnaire was drafted in order to study the preferences of employees of the
organization and collected relevant information about their investment management
techniques and methodologies used to manage the portfolio.
The first draft of the questionnaire was tested among selected respondents
which helped in eliminating ambiguous and irrelevant questions. The final
questionnaire was re-drafted with the help of faculty member and other experts of the
organizations. The questionnaire was distributed among the respondents via linkedin,
email and other massaging application. The respondents found the topic and the
questionnaire very interesting.
I had to explain the purpose of the research and about the techniques they are

36
using to the respondents. Some respondents refused to complete the questionnaire
because of an inquiry into their personal strategy. I was assured to the respondents to
use the information strictly for research purposes. Therefore, the questionnaires, duly
filled in, were collected within a period of two months.
Secondary Data were collected from books, journals, magazines, reports and
websites.
3.7) SAMPLING DESIGN
Proper sampling design is essential in financial research so the sample will be
collected in such a way that will represent the entire population. My Dissertation is
based on Organizational and investors’ awareness of Risk Management Techniques
so I am taking sample of those people who is working as an employee or professional
or self employee who have good knowledge and experience. I have used Judgmental
Sample Collection Techniques.

37
3.8) DATA ANALYSIS TOOLS AND PLAN
The Data thus collected were coded as per the direction of faculty member of GL
Bajaj Institute of Management and Research. Data collected through questionnaire
were tabulated using excel and SPSS software, Interpretation of data were based on
tabulation and analysis.
Statistical methods were used for data analysis such as Mean, percentage, standard
deviation, correlation etc. The statistical conclusions thus drawn have been followed
by logical interpretation. The hypothesis was tested with the help of statistical
technique, such as CHI-square test. The conclusions were drawn on the basis of data
analysis. A few suggestions were made at the end for better management of different
types of techniques of portfolio construction and investment management.
3.9) LIMITATIONS OF THE STUDY
There is always limitation of the report. I have collected response from different
sector. Where I mostly focused on collecting data from banking and non banking
financial institutions. The limitation of my report is pointed out below:
 I have collected data from Delhi NCR only so that it can be not beneficial
from the organization which is located outside the state of Delhi.
 Sample size is small so it is problematic to use analysis tools to get better
analysis.
 Questions are mostly technical so it was difficult to fill out by the respondents.

38
CHAPTER - IV
DATA ANALYSIS AND INTERPRETATION
Age wise response of different questions asked through questionnaire, email and
other massaging app.
From the above diagram we can find out that there is the employees whose age is 30
to 40 is handling 61% of portfolio and investment related work in the asset
management company or other banking organization. Likewise 29% are under the age
of 40-50 and other are below the age of 30 years.

39
There are 83 percentages of male employees who are handling portfolio and
investment related work and only 17 percentages are female employees who are
engages in such types of work.

40
There are Standard Deviation is mostly used in Banking and Financial sector which is
51.6%. VaR technique is mostly used in Investment Related organization and
Chartered Accountant Firm and there is some employees who are using Beta also to
calculate Risk associated with the fund of the investor.

41
From the above pie chart we can find out that there are 45.2% of the employees who
are using portfolio construction method of William Sharpe 25.8% using Frank A.
Sortino, 22.6% using Herry Markowitch, and there are some employees who are
using their own portfolio construction method

42
From the above diagram it is found that there is about 45.2% of the employees who
are using Jenson’s Performance Index, 35.5% of total employees are using Sharpe
Index,16.1% are using Treynor’s index to find out the performance of the portfolio
and investment of the investor.

43
From the above diagram we can find out that there is 48.4% possibilities that
automobile sector will grow at highest rate, We also find out that 29% of the
employees are expecting that Banking sector also grow at highest rate and rest are
believing that there is the possibility to grow Modern Retail business in a highest rate.

44
In the Hybrid Fund, There is always a mix of both equity and debt. Here I wanted to
know about wealth maximization fund which are mostly used in the market to invest
and maximize the wealth for long period of time. Here we can find out that there is
83.9% of the employees are using the ratio of equity and debt is 80:20, and remaining
are using different ratio of the portfolio to maximize the wealth of the investor.

45
In the Hybrid Fund, There is always a mix of both equity and debt. Here I wanted to
know about Income Generation fund which are mostly used in the market to invest
and generate regular income. Here we can find out that there is 71% of the employees
are using the ratio of equity and debt is 20:80, 22.6% are using the ratio of 40:60 and
remaining are using different ratio of the portfolio to generate regular income of the
investor.

46
From the above diagram we can conclude that around 75% of the employees are
believing that their clients are fully satisfied related to risk profiling and controlling
of the risk. But there is around 25% of the employees who are saying that all of their
customer’s are not fully satisfied about they are about to satisfy.

47
From the above diagram we can conclude that around 80% of the employees are
believing that their clients are fully satisfied related to return they are giving to the
clients. But there is around 20%, who are saying that all of their customer’s are not
fully satisfied about they are about to satisfy.

48
Correlation between risk and return satisfaction of the investor.
Correlations
Customer_satisf
action_related_t
o_risk
customer_satisfa
ction_related_to
_return
Customer_satisfaction_relate
d_to_risk
Pearson Correlation 1 -.289
Sig. (2-tailed) .115
N 31 31
customer_satisfaction_relate
d_to_return
Pearson Correlation -.289 1
Sig. (2-tailed) .115
N 31 31
There is moderate negative correlation is found which is -0.289 which means if risk
increases, return will be decreased and vice versa.
Chi-Square Test between age group and pertfolio construction method which
they are using:
Descriptive Statistics
N Mean Std. Deviation Minimum Maximum
age 31 1.8710 .67042 1.00 3.00
technique 31 2.3548 .60819 1.00 3.00

49
Chi-Square Test
Test Statistics
age technique
Chi-Square 7.226a
10.516a
df 2 2
Asymp. Sig. .027 .005
a. 0 cells (.0%) have expected frequencies
less than 5. The minimum expected cell
frequency is 10.3.
Frequencies
[DataSet3]
age
Observed N Expected N Residual
1 9 10.3 -1.3
2 17 10.3 6.7
3 5 10.3 -5.3
Total 31
technique
Observed N Expected N Residual
1 2 10.3 -8.3
2 16 10.3 5.7
3 13 10.3 2.7
Total 31

50
CHAPTER - V
FINDINGS, CONCLUSION AND SUGGESTIONS
5.1) SUMMARY OF FINDINGS
 There is the employees whose age is 30 to 40 is handling 61% of portfolio and
investment related work in the asset management company or other banking
organization. Likewise 29% are under the age of 40-50 and other are below
the age of 30 years.
 There are 83 percentages of male employees who are handling portfolio and
investment related work and only 17 percentages are female employees who
are engages in such types of work.
 There are Standard Deviation is mostly used in Banking and Financial sector
which is 51.6%. VaR technique is mostly used in Investment Related
organization and Chartered Accountant Firm and there is some employees
who are using Beta also to calculate Risk associated with the fund of the
investor.
 45.2% of the employees who are using portfolio construction method of
William Sharpe 25.8% using Frank A. Sortino, 22.6% using Herry
Markowitch, and there are some employees who are using their own portfolio
construction method
 It is observed that 45.2% of the employees who are using Jenson’s
Performance Index, 35.5% of total employees are using Sharpe Index,16.1%
are using Treynor’s index to find out the performance of the portfolio and
investment of the investor.

51
 There is 48.4% possibilities that automobile sector will grow at highest rate,
We also find out that 29% of the employees are expecting that Banking sector
also grow at highest rate and rest are believing that there is the possibility to
grow Modern Retail business in a highest rate.
 In the Hybrid Fund, There is always a mix of both equity and debt. Here I
wanted to know about wealth maximization fund which are mostly used in the
market to invest and maximize the wealth for long period of time. Here we
can find out that there is 83.9% of the employees are using the ratio of equity
and debt is 80:20, and remaining are using different ratio of the portfolio to
maximize the wealth of the investor.
 In the Hybrid Fund, There is always a mix of both equity and debt. Here I
wanted to know about Income Generation fund which are mostly used in the
market to invest and generate regular income. Here we can find out that there
is 71% of the employees are using the ratio of equity and debt is 20:80, 22.6%
are using the ratio of 40:60 and remaining are using different ratio of the
portfolio to generate regular income of the investor.
 I have found 75% of the employees are believing that their clients are fully
satisfied related to risk profiling and controlling of the risk. But there is
around 25% of the employees who are saying that all of their customer’s are
not fully satisfied about they are about to satisfy.
 I have found around 80% of the employees are believing that their clients are
fully satisfied related to return they are giving to the clients. But there is
around 20%, who are saying that all of their customer’s are not fully satisfied
about they are about to satisfy.

52
5.2) CONCLUSIONS
 There are Standard Deviation is mostly used in Banking and Financial sector
which is 51.6%. VaR technique is mostly used in Investment Related
organization and Chartered Accountant Firm and there is some employees
who are using Beta also to calculate Risk associated with the fund of the
investor.
 There are 83 percentages of male employees who are handling portfolio and
investment related work and only 17 percentages are female employees who
are engages in such types of work.
 There is 48.4% possibilities that automobile sector will grow at highest rate,
We also find out that 29% of the employees are expecting that Banking sector
also grow at highest rate and rest are believing that there is the possibility to
grow Modern Retail business in a highest rate.

53
5.3) SUGGESTIONS
 There is less female who are involved in this types of work. So it is good to
involve more female in this area.
 There are more than 50% of the employees who are using VaR techniques to
analyze risk for their investment. So it is suggested that they can use more
than one technique for the risk calculations.
 There will be more of modern portfolio construction like Sortino, Treynor etc.
should be used.

54
REFERENCES
Fundamental of Financial Management, Third Edition, Asmita Publication (Rajan B.
paudel, Keshar J. Baral, Rishi R. Gautam, Gyan B. Dayal, Surya B. Rana)
Derivatives and Risk Management , Second Edition, Rajiv Srivastava
Management of Banking and Financial Services, Third Edition, padmalatha Suresh
and Justin Paul
Financial and Management Accounting, Sikkim Manipal University
Security Analysis and Portfolio Management, Fifth Edition, Prasanna Chandra
Project Financing in Emerging Economics, Seventh Edition, Prasanna Chandra
Brigham, E. M., & Houston, J. F. 2007. Fundamentals of Financial Management.
11th edition. Thomson South-Western
Burney, A. 2008. Inductive and deductive research approach. Referenced 3 April
2015.
http://www.drburney.net/INDUCTIVE%20&%20DEDUCTIVE%20RESEARC
H%20APPROACH%2006032008.pdf
Campbell, R. & Stenphen, G. 1997. Portfolio Analysis and Diversification.
Referenced 2 April 2015.
http://people.duke.edu/~charvey/Classes/ba350_1997/diverse/diverse.htm
Do, T. 2014. Capital Asset Pricing Model in building investment portfolio. Lahti
University of Applied Sciences. Faculty of Economic and Business Administration.
Elton, E. J & Gruber, M. J. Risk Reduction and Portfolio Size: An Analytic Solution.
Journal of Business 50 (October 1977). 415-37.
Fama, F. G., & French, R. K. 2014. The Capital Asset Pricing Model: Theory and
Evidence. Referenced 6 April 2015. http://www-
personal.umich.edu/~kathrynd/JEP.FamaandFrench.pdf
Golafshani, N. 2003. The Quanlitative Report . Referenced 6 April
http://www.nova.edu/ssss/QR/QR8-4/golafshani.pdf
James, C. & John, M.1998. Fundamentals of Financial Management. 10th edition.
Pearson.

55
Jensen, M. C. 1968. The performance of Mutual Funds in the period 1945-1964.
Journal of Finance 23. 389-416.
Jense, M.D. S. 2011. The Capital Asset Pricing Model: Theory, Econometrics, and
Evidence. Aarhus University. Department of Business Study.
Johnruss 2012. University of Oregon Libraries: What are secondary sources?.
Referenced 6 April 2015. https://library.uoregon.edu/guides/history/primary.html
Pareto, C. 2015. Measure your portfolio Performance. Referenced 2 April 2015.
http://www.investopedia.com/articles/08/performance-measure.asp
Peri, I. 2015. Portfolio Asset Allocation. Referenced 2 April 2015.
http://learning.escrennes.fr/pluginfile.php/34114/mod_resource/content/1/PM%20S2.
pdf
Reilly, F. K., & Brown, K. C. 2003. Investment Analysis: Portfolio Management. 7th
edition. Thomson South-Western.
Richard Roll, “A critique of asset pricing theory’s tests”, Journal of financial
economic, March 1977,129-176.
Ryan, B., Scapens, R., & Theobald, M. 1992. Research method and methodology in
finance and accounting. Academic Press Limited.
Saunders, M., Lewis, P. & Thornhill, A. 2009. Research methods for business
students. 5th edition. Pearson.
Schwarcz, S. L. 2008. Systemic risk. Referenced 10 April 2015.
http://georgetownlawjournal.org/files/pdf/97-1/Schwarcz.PDF.
Shapiro, A. 2015. Capital Asset Pricing Model. Referenced 3 April 2015.
http://people.stern.nyu.edu/ashapiro/courses/B01.231103/FFL09.pdf.
Sharpe, W. F. 1966. Mutual Fund Performance. Journal of Business 3. 119-138.
Treynor, J. L. 1996. How to Rate Management of Investment Funds. Harvard
Business Review 63. 63-75.
Walbert, K. 2015. Reading primary sources: An introduction for students. Refereced
6 April 2015. http://www.learnnc.org/lp/pages/745
Yan, X. 2004. Optimal Risky Portfolio. Referenced 28 March 2015
http://business.missouri.edu/yanx/fin333/lectures/Riskyportfolio%20short.pdf

1/15/2018 Risk Measurement Techniques used in Portfolio and Investment Management
https://docs.google.com/forms/d/1C6ylT-8_6mGcQ_U33i9vj8xXojOuzgs17ZFfC9M1vKc/edit 1/3
Risk Measurement Techniques used in Portfolio and
Investment Management
This is the questionnaire of my dissertation topic 'Risk Measurement Techniques used in Portfolio and
Investment Management'. I request you to kindly fill the below questions and help me to complete my
dissertation with authentic data.
Thank you in advance.
* Required
1. Name *
2. Company *
3. Email *
4. Designation
5. Gender
Mark only one oval.
Male
Female
Other
6. Age
Mark only one oval.
Below 30
30 - 40
40 - 50
Above 50

7. 1. Which Risk measurement techniques do you use to calculate the risk of the fund? *
Mark only one oval.
Beta
Standard Deviation
VaR
Other:
8. 2. Which Portfolio Construction method do you follow while calculating risk? *
Mark only one oval.
Herry Markowitch
William Sharpe
Frank A. Sortino
Other:
9. 3. Which Performance Measurement Index Do you use to find out the overall performance of
the fund? *
Mark only one oval.
Treynor’s Performance Index
Jonson’s Performance Index
Sharpe’s performance Index
Other:
10. 4. In which sector do you invest the most to get high return in 2018? *
Mark only one oval.
Banking
Automobile
Pharmaceutical
Retail
Other:
11. 5. What is the ratio of equity and debt in Hybrid fund for wealth maximization in portfolio? *
Mark only one oval.
20:80
40:60
60:40
80:20
Other:

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12. 6. What is the ratio of equity and debt in Hybrid fund for Income Generation in your portfolio?
Mark only one oval.
20:80
40:60
60:40
80:20
Other:
13. 7. How do you rate your customer's satisfaction related to risk *
Mark only one oval.
1 2 3 4 5
Not satisfied Most satisfied
14. 8. How do you rate your customer's satisfaction related to return? *
Mark only one oval.
1 2 3 4 5
Not satisfied Most satisfied

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