PORTFOLIO CREATION

Introduction

Portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual, exchange-traded and closed-fund counterparts for maximizing the return for the investors. The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management. Personal Portfolio management refers to managing an individual’s investments in the form of bonds, shares, mutual funds etc so that he earns the maximum profits within the stipulated time frame. It refers to managing money of an individual under the expert guidance of portfolio managers taking into account factors such as investor’s risk profile, age, investment philosophy, investment goal and the background of the investor. Given below is an example of a personal portfolio created for an individual with a certain set of interests and background.

Introduction to the investor

The investor taken as example in this case is Mr.Rahul (22 years), a young professional who is working with E&Y in Cochin with a monthly salary of Rs. 38000 per month. He lives in a rented house, along with his family that consists of his father who is a retired government employee earning pension, mother who is a housewife and a brother who is a pursuing MBBS. The pension earned by his father would only be enough to meet the educational expenses of his brother. Monthly expenses of his family amounts to Rs.15000/ and he is left with an investable amount of Rs.23000 in hand per month.

Future goals of the investor

Construction of a house within 3 years

Marriage within 7 years

Start his own business within 10 years

Pay off the educational loan

Provide a steady income to his family

Assumptions

Mr.Rahul is a moderate risk taker.

He owns a plot of land (10 cents) in the outskirts of the city.

Owns 25 sovereigns of gold

Inflation rate in the economy fluctuates around 6-7% for the next few years.

No change in the taxation policy is expected in the near future

Current bank balance of Rs.1,50,000 in state bank of India

Investment Philosophy of the investor

“I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”

Investor risk profile

The investor is a medium risk taker who is ready to take risks to certain extends but is always cautious about his investments. He is not ready to speculate with his hard earned money and always looks to invest with a long term perspective.

The method used in finding out the risk profile of the investor is depicted in the figure below.

PORTFOLIO FOR RAHUL

Stock52%

Mutual Fund11%

PPF9%

Insurance7%

SB a/c22%

RAHUL ' S Portfolio - Asset Classification

StockMutual FundPPFInsuranceSB a/c

1) STOCKS OF BHARTI AIRTEL

TECHNICAL ANALYSIS OF AIRTEL

Simple Moving Average and Exponential Moving Average Chart for Bharti Airtel

INDICATORS AND OSCILLATORS

Indicators For Bharti Airtel Ltd.

Name Value

MACD (26d ,12d) -4.07

Signal Line -2.27

Macd Above Signal Line false

Macd/Signal Line trend days 5

Macd Above Zero Line false

Macd/Zero Line trend days 6

Bollinger Band Upper 406.51

Bollinger Band Middle 390.83

Bollinger Band Low 375.15

Average Directional Index 26.16

ADX +DI 12.07

ADX -DI 23.30

Chaikin Money Flow -0.11

Oscillators & Volume Indicators

Name Value

Stochastic D Fast 13.06

Stochastic K Fast 7.26

Stochastic D Slow 16.22

Relative Strength Index (RSI) (14 day)

40.85

Williams %R -92.74

Rate of Change -3.20

Price Volume Trend 10672200.00

Money Flow Index 55.65

Aroon Up 0.00

Aroon Down 44.00

Ultimate Oscillator 36.85

Average True Range 10.41

On Balance Volume 20197400.00

Accumulation Distribution -20038000.00

Moving Average Trends

    

Moving Average of Bharti Airtel Ltd.

Trend Type Price Above MA?

No of Days

15 Day false 6

50 Day false 6

100 Days false 1

15 Day Abv 50 Days MA

false 15

50 Day Abv 100 Days MA

true 131

Current Share Price 378.40

Three Days 380.18

Five Days 381.65

Ten Days 390.40

Fifteen Days 391.84

Twenty Two Days 391.42

Thirty Days 395.46

Fifty Days 399.18

Hundred Days 382.76

Two Hundred Days 351.73

JUSTIFICATION

From the graph we can see that Simple moving Average and Exponential Moving Average of

Bharti Airtel shows a bullish trend over the period of 10 years. The share price is expected to go

up in future also. Moreover there is also a bullish trend prevailing in the Indian Stock market.

Sneha should buy Airtel shares with a long-term perspective. Airtel is the market leader of

telecommunication sector and has very strong fundamentals. Airtel has increasing EPS, revenue,

profits, P/E over the 5 years. Technical analysis shows that Airtel shares can be bought even

though the prices are falling due to an expectation of trend reversal. With increase in FDI in

telecommunication sector and bullish run in Indian stock market, the shares are expected to rise

over a span of 3 years. Moreover, Airtel has been selling off its towers in Nigeria to raise funds

for paying off their huge debts. This would decrease their interest liability, which accounted for

15% of their total liability.

Conclusion

Investor should buy 20 stocks of Airtel for continuously 12 months and accumulate this over a

period of 3 years and sell it off to take advantage of capital gains.The long term capital gains

arising from this is tax exempted. Rahul can use this fund for meeting expenses of constructing

house. Airtel shares are expected to go to the range of Rs 450 – 500 in a span of three to five

years.

Rating by Standard and Poor : Stable

2) STOCKS OF LARSEN AND TOUBRO

TECHNICAL ANALYSIS OF L & T

INDICATORS AND OSCILLATORS

Indicators For Larsen & Toubro Ltd.

Name Value

MACD (26d ,12d) 19.20

Signal Line 24.46

Macd Above Signal Line false

Macd/Signal Line trend days

7

Macd Above Zero Line true

Macd/Zero Line trend days 25

Bollinger Band Upper 1674.24

Bollinger Band Middle 1638.01

Bollinger Band Low 1601.77

Average Directional Index 14.74

ADX +DI 21.69

ADX -DI 20.47

Chaikin Money Flow -0.06

Oscillators & Volume Indicators

Name Value

Stochastic D Fast 44.39

Stochastic K Fast 54.97

Stochastic D Slow 40.83

Relative Strength Index (RSI) (14 day)

56.84

Williams %R -45.03

Rate of Change 1.72

Price Volume Trend 2476530.00

Money Flow Index 53.26

Aroon Up 28.00

Aroon Down 0.00

Ultimate Oscillator 51.26

Average True Range 34.60

On Balance Volume 58815800.00

Accumulation Distribution 9439410.00

Moving Average Trends

Trend Type Price Above MA?

No of Days

15 Day true 2

     Moving Average of Larsen & Toubro Ltd.

Current Share Price 1644.15

Three Days 1635.27

50 Day true 28

100 Days true 23

15 Day Abv 50 Days MA

true 20

50 Day Abv 100 Days MA

false 46

Five Days 1632.86

Ten Days 1641.32

Fifteen Days 1638.02

Twenty Two Days 1639.70

Thirty Days 1613.53

Fifty Days 1560.36

Hundred Days 1571.88

Two Hundred Days 1457.79

JUSTIFICATION

L and T share price average movements shows a bullish trend and we can expect a further bullish trend for this share.The share is technically strong and shows a buy signal for the long term.

Infrastructure is an industry which has huge prospects of growth in the future. With the Make in India Campaign active and FDI in the industry going up, there is huge expectations of bullish trend in the industry. Moreover L and T is the market leader in this industry. It has signed various crucial contracts in the future like Metro Rails, Malls etc leading to huge profitability and expectation for investors. Rahul should invest in 5 Stocks of L & T and then hold it for 5 year prospective and sell it off and enjoy capital gains.This long term capital gains can be used for construction of house expenses.

Rating : CRISIL – A +

(iii)TATA BALANCED FUND

Balanced fund is a mutual fund in which a portion is invested in debt, equity as well as money market instruments. It assures security, profitability and liquidity. Debt gives a steady income to the investor, Equity provides profitability in the form of high returns and money market instruments provides liquidity. The investment can be in a proportion of 60:20:20.

Performance of the fund over the last 10 years

This shows that the return from the fund is on an increasing trend.

From the above analysis we can find that the Balanced fund is expected to get a return of 16.40 for a period of 5 years and 19.65 for a period of 10 years. The return from this is also tax exempted under long term capital gains.

Rahul should invest Rs 2500 monthly in this balanced fund.

(iv) SBI Public Provident Fund

PPF refers to Public Provident Fund and is a Long Term Debt Scheme of the Govt. of India on which regular interest is paid. Any Individual (whether Salaried or Self-Employed or any other category) can invest in this scheme and can earn a tax-free return on the same which is usually higher than the return offered by Banks on Fixed Deposits.

The entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7th year onwards. Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower.

It is a savings cum tax savings instrument, which ensures security. The rate of interest on PPF is 8.7%. it is also tax exempted under 80(c). It will provide a steady income for Rahul as well as security for income after retirement. It is also low risk investment. Moreover, loans can be taken on this PPF after a period of 5 years for meeting any emergency.

The return from PPF can be used for his marriage expenses as he has a marriage plan after 7 Years.

Rahul should invest Rs 2000 for every month for earning the below returns.

Returns from PPF

(v) LIC TERM INSURANCE

Term insurance is associated with lower premium and it can be used to meet a specific financial obligation. Moreover it can be converted to cash after a certain period by surrendering the insurance policy.

Rahul must invest Rs 1500 in insurance for getting 2.5 crores at the end of ten years.This amount can be used to start a business as his initial capital.

(vi) SBI Savings Bank Deposit

The interest rate for SBI bank deposits are 4%. This offers liquidity as money can be withdrawn any time for meeting any contingencies that may happen (medical expenses etc). The left over money after investing in stocks , mutual fund etc can be taken to SBI Savings Account. Already there is a balance of Rs 150000 in his savings bank account.Moreover he can contribute Rs 5000 per month to this account.He can pay off his educational loan from this balance.

CONCLUSION

Rahul can satisfy his dream of constructing his own house by getting funds from the shares and balance fund. Moreover, he can pay off his educational loans from the returns he get from investments. He can meet the expenses of his marriage from PPF or through balance funds. Long term funds for starting business can be got from term insurance. Moreover, PPF, long term capital gains are tax exempted. So totally after meeting all the expenses, he has got Rs 23000 which has been invested in the portfolio. This portfolio addresses the need for security, liquidity and profitability and will help him realize his future goals .

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