A Project Report on Overview of Portfolio Management
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Added on 2020-02-05
A Project Report on Overview of Portfolio Management
Added on 2020-02-05
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CAPITAL MARKETS ANDINVESTMENT 1
Table of ContentsINTRODUCTION................................................................................................................................3RATIONALE FOR THE CHOICE OF THE PORTFOLIO.................................................................3EVALUATION, EXAMINATION AND APPLICATION OF THE INVESTMENT THEORIES AND MODELS....................................................................................................................................73.1 Efficient market hypothesis theory.............................................................................................83.2 Capital assets pricing model.......................................................................................................83.3 Modern portfolio theory.............................................................................................................93.4 Investment styles........................................................................................................................9CONCLUSION BASED ON PORTFOLIO PERFORMANCE........................................................10REFERENCES...................................................................................................................................122
INTRODUCTIONIn the current age, companies started operating in the domestic as well as overseas. It attractsinvestors to invest their money in the profitable companies so as to get maximum return. However,the different level of risk and reward on different nature of securities make it essential for theinvestors to make rational and informed investment decisions after carrying out an in-depthanalysis. The present project report aims at creating a portfolio comprising minimum of 5 productor assets for the purpose of diversification and risk minimizing. Moreover, the report will alsopresent a critical evaluation of various theories of investment like modern portfolio theory, efficientmarket hypothesis, capital assets pricing model and others. Lastly, the designed portfolio will beevaluated in terms of both the risk and return so as to satisfy the investor return expectations. RATIONALE FOR THE CHOICE OF THE PORTFOLIOPortfolio comprises various securities which investors are looking to incorporate for theinvestment purpose. There are different types of securities that can be included for the portfolioconstruction such as equity, bond, liquid assets like mutual fund, commodities like gold and fixedincome bearing securities as well (Ambrosin and et. al., 2015). Here, with the presented situation, aportfolio has been designed keeping into account the risk-averse profile of the investors. Assets allocation: Before making the investment decisions, assets allocation basis needs tobe decided by the investor keeping into account their willingness or ability to accept risk for theportfolio (Tong, Hu and Hu, 2017). Here, as said earlier, that investor is risk-averse and tries tominimize the risk as much as he or she can, therefore, assets allocation has been created here asfollows:Initial investment150000Proportion/weightBond 4500030.00%Equity22853.515.24%Mutual fund 52146.534.76%Fixed interest15629.010.42%Commodities (Gold)143719.58%Total150000100%3
Interpretations: From the chart, it can be seen that it has been decided to give high weight to the liquidfunds. It is because, by investing in mutual funds (M/F), investor can minimize the overall risk ofthe portfolio via diversifying the securities. By the purchase of mutual fund, investor can get benefitof instant diversification as his money is combined with the other investors and invested in varyingsecurities to provide better yield (Standaert and Manigart, 2017). In the above table, 35% weightagehas been given to the mutual funds afterwards, second maximum allocation has been made to thebond to 30%. It is because, they are considers as larger safer investment in comparison to the stock(Auer, 2016). Moreover, they has less impact of daily volatility and at the same time, it deliver fixedregular return to the investor. However, on the other hand, equity is consider risky investmentbecause shareholders do not have any right to take back their money, if firm bankrupts or fails(Kenfack and et.al., 2016). At the same time, dividend highly fluctuates on the basis of volatility inthe earnings and movement in the stock market. Therefore, equity has been given a weightage of15%. Apart from this, 10.42% and 9.58% funds has been allocated to the fixed interest and goldcommodity. There are multiple reasons due to which multiple assets are included in the portfolio. Someof the reasons due to which specific security is included is explained below.Bond: Investment of 30% is made on the bond out of total investment amount. Investmentin the current time period on different products is very risky. This is because currently,financial markets are not stable and investors are losing money on equity and other highlyrisky securities. Thus, in order to hedge position against market risk 30% of investment ismade in the bond (Peltomäki, 2017). However, return on investment is always low in thebond but in order to secure principal amount corpus 30% is allocated to bond. It is assumed4
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