Fin Investment Study to Balaji Mba Project
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STUDY OFINDIVIDUALSINVESTMENT
PATTERNS ANDSCOPE OF MUTUAL
FUNDS
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ACKNOWLEDGMENT
My experience of working at HSBC Bank was indeed valuable for myfuture endeavours. The happiest thing in my project comes in thanking thosewho have helped me in the way they can to make my project a success.
First and foremost I would like to thank Mr. SLEEVA RAJU investment
Relationship Manager, HSBC Bank, Hyderabad for giving me an excellentopportunity to work with HSBC Bank.
Extending my thanks to all the employees of HSBC Bank, Hyderabadfor their friendly approach, I once again thank all those who have helped mein accomplishment of this project.
PLACE: Hyderabad
Date:
**************
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DECLARATION
PLACE: Hyderabad
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CONTENTS
Acknowledgement
Declaration
Certificates
Chapter 1: Investment- Overview
1.1 What is investment?
1.2 Investment alternatives
1.3 Investment attributes
1.4 Types of investment
1.4.1 Business Management
1.4.2 Economics
1.4.3 Finance
1.4.4 Personal finance
1.4.5 Real estate
1.4.5.1 Residential Real Estate
1.4.5.2 Commercial Real Estate
Chapter 2: Portfolio Management
2.1 Portfolio Management process.
2.1.1. Specification of Investment Objectives and Constraints:
2.1.2 Choice of the Asset Mix
2.1.3 Formulation of Portfolio Strategy
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EXECUTIVE SUMMARY
MAJOR FINDINGS OF THE STUDY
1. Majority of the people are interested in investing in real estates and bank deposits2. While investing, People are taking into account the investment attributes like rate of return,
risk factor, duration, tax, good track record of the company. Majority of the people are
seeking to get 50% of the returns from their investments.
3. The people are interested to invest in less risky areas and willing to go for long termDeposits. The number of people, who are looking into the brand name and companyrefutation before investment stands 80%.
4. The people are more aware of bank deposits and real estates but still there are people whoare not aware of bank deposits. So, the banks can cater that market.
5. There are more than 50% of the people are not aware of mutual funds. They are seeking toget awareness. People are aware of mutual funds but they do not know various schemes
available.
6. Majority of the people are willing to get information through, T.V Advertisements, agents
THE AIM OF THE STUDY
There are many investments patterns but the awareness isminimal for some investment options.
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The market study is needed to know their preferredinvestment patterns and awareness levels of every option.
THE OBJECTIVES OF THE STUDY
To know the investment patterns of individuals
To know the awareness level of Mutual Funds
METHODOLOGY
Drafted a questionnaire to collect the data
After the test marketing, modifications are done in thequestionnaire.
Used SPSS software technique to analyze in differentcombinations.
Analysis is obtained by using Cluster, Factor, Chi-square,ANOVA and Regression Techniques.
Usage of Ms.Excel for special analysis.
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LIMITATIONS AND SCOPE FOR FURTHER STUDY
This study is been conducted in Hyderabad covering many areas.The results obtained will not be generalized. This survey becamea qualitative survey rather than quantitative survey. The study inother major places of India can give more accurate results.
Secondly, most of the people felt hesitated to reveal the truefigure of their income and investment patterns.
There is tremendous scope for further research in terms ofcovering many cities. Since the data is ever changing with newunprecedented styles, many more factors should be taken intoconsideration. Using different research techniques like focusgroups discussion will yield valuable results.
Chapter-1
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Investments-
Overview
1.WHAT IS AN INVESTMENT
An investment is a sacrifice of current money or other resources for future
benefits. The key aspects of any investment are time and risk. The sacrifice takes
place now and is certain. The benefit is expected in the future and tends to be
uncertain. In some investments the time element is the dominant attribute. In other
investments the risk element is the dominant attribute. In yet other investments
both time and risk are important.
Almost every one owns a portfolio of investments. The portfolio is likely to comprise
financial assets (bank deposits, bonds, stocks, and so on) and real assets( motorcycle,house, and so on).
1.1 Investment Alternatives
Non- marketable financial assets:
Bank deposits
Post office deposits
Company deposits
Provident fund deposits
Equity shares: ::
Blue chip shares
Growth shares
Income shares
Cyclical shares
Speculative shares
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Bonds: ::
Government securities
Savings bonds
Government agency securities
PSU bonds
Debentures of private sector companies
Preference shares
Money market instruments:
Treasury bills
Commercial paper
Certificates of deposit
Mutual funds:
Equity schemes
Debt schemes
Balanced schemes
Life insurance:
Endowment assurance policy
Money back policy
Whole life policy
Term assurance policy
Real Estate::
Agricultural land
Semi-urban land
Commercial property
Precious Objects:
Gold and silver
Precious stones
Art objects
Financial Derivatives:
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Options
Futures
1.2 INVESTMENT ATTRIBUTES:
For evaluating an investment avenue, the following attributes are relevant.
Rate of return
Risk
Marketability
Tax shelter
Convenience
Rate of Return:
The rate of return on an investment for a period, which is usually a period of one year, is
defined as follows:
Rate of return = Annual income + (Ending price Beginning price)
Beginning Price
Risk
The rate of return from investments like equity shares, real estate, silver, and gold can
vary rather widely. The risk of an investment refers to the variability of its rate of return:
How much do individual outcomes deviate from the expected value? A simple measure of
dispersion is the range of values, which is simply the difference between the highest and
the lowest values. Other measures commonly used in finance are as follows:
Variance : This is the mean of the squares of deviations of individual
returns around their average value.
Standard deviation : This is the square root of variance
Beta : This reflects how volatile the return from an investment is in
response to market swings.
Marketability: an investment is highly marketable or liquid if:
(a) It can be transacted quickly
(b) The transaction cost is low
(c) The price change between two successive transactions is negligible. The liquidity of a
market may be judged in terms of its depth, breadth, and resilience.
Depth refers to the existence of buy as well as sells order around the current market price.
Breadth implies the presence of such orders in substantial volume.
Resilience means that new orders emerge in response to price changes.
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Generally, equity shares of large, well-established companies enjoy high marketability
and equity shares of small companies in their formative years have low marketability and
equity shares of small companies in their formative years have low marketability. High
marketability is a desirable characteristic and low marketability is an undesirable one.
How does one evaluate the marketability of an investment like a provident fund
deposit which is non-marketable by its very nature? In such a case, the relevant question
to ask is: can withdrawals be made or loans be taken against the deposit? Such an
investment may be regarded as highly marketable if any of the following conditions are
satisfied:
(a) A substantial portion of the accumulated balance can be withdrawn without significant
penalty;
(b) A loan can be raised at a rate of interest that is only slightly higher than the rate of interest
earned on the investment itself.
Tax shelter
Some investments provide tax benefits; others do not. Tax benefits are of the following
three kinds.a) Initial tax benefit: An initial tax benefit refers to the tax relief enjoyed at the time of
making the investment. For example, when you make a deposit in a Public Provident
Fund Account, you get a tax benefit under section 80 C of the Income Tax Act.
b) Continuing tax benefit: a continuing tax benefit represents the tax shield associated with
the periodic returns from the investment. For example, dividend income and income from
certain other sources are tax-exempt, upto a certain limit, in the hands of the recipient.
c) Terminal Tax Benefit: A terminal tax benefit refers to relief from taxation when an
investment is realize or liquidated. For example, a withdrawal from a public provident
fund account is not subject to tax.
Convenience:
Convenience broadly refers to the ease with which the investment can be made and
looked after. Put differently, the questions that we ask to judge convenience are:
a) Can the investment be made readily?
b) Can the investment be looked after easily?
The degree of convenience associated with investments varies widely. At one end of the
spectrum is the deposit in a savings bank account that can be made readily and that doesnot require any maintenance effort. At the other end of the spectrum is the purchase of a
property that may involve a lot of procedural and legal hassles at the time of acquisition
and a great deal of maintenance effort subsequently.
1.3 Types of investment
The term "investment" is used differently in economics and in finance.
Economists refer to a real investment (such as a machine or a house), while financial
economists refer to a financial asset, such as money that is put into a bank or the
market, which may then be used to buy a real asset.Returns on investments will follow
the risk-return spectrum.
1.3.1 Business Management
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The investment decision (also known as capital budgeting) is one of the
fundamental decisions of business management: managers determine the assets that the
business enterprise obtains. These assets may be physical (such as buildings or
machinery), intangible (such as patents, software, goodwill), or financial (see below). The
manager must assess whether the net present value of the investment to the enterprise is
positive; the net present value is calculated using the enterprise's marginal cost of capital.
1.3.2 Economics
In economics, investment is the production per unit time of goods which arenot consumed but are to be used for future production. Examples include tangibles (such
as building a railroad or factory) and intangibles (such as a year of schooling or on-the-
job training). In measures of national income and output, gross investment I is also a
component of Gross domestic product (GDP), given in the formula GDP = C + I + G +
NX. I is divided into non-residential investment (such as factories) and residential
investment (new houses). "Net" investment deducts depreciation from gross investment.
It is the value of the net increase in the capital stock per year.
Investment, as production over a period of time ("per year"), is not capital.
The time dimension of investment makes it a flow. By contrast, capital is a stock, that is,
an accumulation measurable at a point in time (say December 31st).
Investment is often modeled as a function of income and interest rates, given
by the relation I = f(Y, r). An increase in income encourages higher investment, whereas a
higher interest rate may discourage investment as it becomes more costly to borrow
money. Even if a firm chooses to use its own funds in an investment, the interest rate
represents an opportunity cost of investing those funds rather than loaning them out for
interest.
1.3.3 Finance
In finance, investment is buying securities or other monetary or paper (financial)assets in the money markets orcapital markets, or in fairly liquid real assets, such as gold,
real estate, or collectibles. Valuation is the method for assessing whether a potential
investment is worth its price.
Types of financial investments include shares, other equity investment, and
bonds (including bonds denominated in foreign currencies). These financial assets are
then expected to provide income or positive future cash flows, and may increase or
decrease in value giving the investor capital gains or losses.
Trades in contingent claims orderivative securities do not necessarily have
future positive expected cash flows, and so are not considered assets, or strictly speaking,
securities or investments. Nevertheless, since their cash flows are closely related to (orderived from) those of specific securities, they are often studied as or treated as
investments.
Investments are often made indirectly through intermediaries, such asbanks,
mutual funds, pension funds, insurance companies, collective investment schemes, and
investment clubs. Though their legal and procedural details differ, an intermediary
generally makes an investment using money from many individuals, each of whom
receives a claim on the intermediary.
1.3.4 Personal finance
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Equity_investmenthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Intermediaryhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Investment_clubhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Equity_investmenthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Intermediaryhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Investment_club -
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Within personal finance, money used to purchase shares, put in a collective
investment scheme or used to buy any asset where there is an element of capital risk is
deemed an investment. Saving within personal finance refers to money put aside,
normally on a regular basis. This distinction is important, as investment riskcan cause a
capital loss when an investment is realized, unlike saving(s) where the more limited risk
is cash devaluing due to inflation.
In many instances the terms saving and investment are used interchangeably,
which confuses this distinction. For example many deposit accounts are labeled as
investment accounts by banks for marketing purposes.
Whether an asset is a saving(s) or an investment depends on where the money is
invested: if it is cash then it is savings, if its value can fluctuate then it is investment.
1.3.5 Real estate
In real estate, investment is money used to purchaseproperty for the sole purpose
of holding or leasing for income and where there is an element of capital risk. Unlike
other economic or financial investment, real estate is purchased. The seller is also called a
Vendor and normally the purchaser is called a Buyer.
1.3.5.1 Residential Real Estate
The most common form of real estate investment as it includes the
property purchased as peoples houses. The investment in residential real estate is the least
risky.
1.3.5.2 Commercial Real Estate
Commercial real estate is the owning of a small building or large warehouse a
company rents from so that it can conduct its business. Due to the higher risk of
Commercial real estate, lending rates of banks and other lenders are lower and often fall
in the range of 50-70%.
Chapter 2
http://en.wikipedia.org/wiki/Personal_financehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Savinghttp://en.wikipedia.org/wiki/Investment_riskhttp://en.wikipedia.org/wiki/Saving_(money)http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Propertyhttp://en.wikipedia.org/wiki/Personal_financehttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Savinghttp://en.wikipedia.org/wiki/Investment_riskhttp://en.wikipedia.org/wiki/Saving_(money)http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Property -
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Portfolio Management
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2. WHAT IS A PORTFOLIO?
In finance, a portfolio is a collection of investments held by an institution or a
private individual. In building up an investment portfolio a financial institution will
typically conduct its own investment analysis, whilst a private individual may make use
of the services of a financial advisor or a financial institution which offers portfolio
management services. Holding a portfolio is part of an investment and risk-limiting
strategy called diversification. By owning several assets, certain types of risk (in
particular specific risk) can be reduced. The assets in the portfolio could include stocks,
bonds, options, warrants, gold certificates, real estate, futures contracts, production
facilities, or any other item that is expected to retain its value.
2.1 Portfolio Management Process:
Investment management is a complex activity which may be broken down into the
following steps:
2.1.1. Specification of Investment Objectives and Constraints: the typical objectives sought
by investors are current income, capital appreciation, and safety of principal. The relative
importance of these objectives should be specified. Further, the constraints arising from
liquidity, time horizon, tax, and special circumstances must be identified.
2.1.2 Choice of the Asset Mix: the most important decision in portfolio management is the asset
mix decision. Very broadly, this is concerned with the proportions of stocks and bonds
in the portfolio. The appropriate stock-bond mix depends mainly on the risk tolerance
and investment horizon of the investor.
2.1.3 Formulation of Portfolio Strategy: once a certain asset mix is chosen, an appropriate
portfolio strategy has to be hammered out. Two broad choices are available; an active
portfolio strategy or a passive portfolio strategy. An active portfolio strategy strives to
earn superior risk-adjusted returns by resorting to market timing, or sector rotation, or
security selection, or some combination of these. A passive portfolio strategy, on theother hand, involves holding a broadly diversified portfolio and maintaining a pre-
determined level of risk exposure.
2.1.4 Selection of Securities: Generally, investors pursue an active stance with respect to
security selection. For stock selection, investors commonly go by fundamental analysis
and /or technical analysis. The factors that are considered in selecting bonds are yield to
maturity, credit rating, term to maturity, tax shelter, and liquidity.
2.1.5 Portfolio Execution: this is the phase of portfolio management which is concerned with
implementing the portfolio plan by buying and / selling specified securities in given
amount. Though often glossed over in portfolio management discussions, this is an
important practical step that has a bearing on investment results.
2.1.6 Portfolio Revision: the value of a portfolio as well as its composition- the relative
proportions of stock and bond components- may change as stocks and bonds fluctuate. Of
course, the fluctuation in stocks is often the dominant factor underlying this change. In
response to such changes, periodic rebalancing of the portfolio is required. This primarily
involves a shift from stocks to bonds or vice versa. In addition, it may call for sector
rotation as well as security switches.
2.1.7 Performance Evaluation: The performance of a portfolio should be evaluated
periodically. The key dimensions of portfolio performance evaluation are risk and return
and the key issue is whether the portfolio return is commensurate with its risk exposure.
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Such a review may provide useful feed back to improve the quality of the portfolio
management process on a continuing basis.
2.2 Modern portfolio theory (MPT)
Proposes how rational investors will use diversification to optimize their
portfolios, and how a risky asset should be priced. The basic concepts of the theory are
Markowitz diversification, the efficient frontier, capital asset pricing model, the alpha andbeta coefficients, the Capital Market Line and the Securities Market Line.
MPT models an asset's return as a random variable, and models a portfolio as a
weighted combination of assets; the return of a portfolio is thus the weighted combination
of the assets' returns. Moreover, a portfolio's return is a random variable, and
consequently has an expected value and a variance. Risk, in this model, is the standard
deviation of the portfolio's return
Objectives
1. Return requirements
2. Risk tolerance
http://en.wikipedia.org/wiki/Homo_economicushttp://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Portfolio_(finance)http://en.wikipedia.org/wiki/Harry_Markowitzhttp://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Alpha_coefficienthttp://en.wikipedia.org/wiki/Beta_coefficienthttp://en.wikipedia.org/wiki/Random_variablehttp://en.wikipedia.org/wiki/Expected_valuehttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Homo_economicushttp://en.wikipedia.org/wiki/Diversification_(finance)http://en.wikipedia.org/wiki/Portfolio_(finance)http://en.wikipedia.org/wiki/Harry_Markowitzhttp://en.wikipedia.org/wiki/Capital_asset_pricing_modelhttp://en.wikipedia.org/wiki/Alpha_coefficienthttp://en.wikipedia.org/wiki/Beta_coefficienthttp://en.wikipedia.org/wiki/Random_variablehttp://en.wikipedia.org/wiki/Expected_valuehttp://en.wikipedia.org/wiki/Variancehttp://en.wikipedia.org/wiki/Standard_deviationhttp://en.wikipedia.org/wiki/Standard_deviation -
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Constraints and preferences
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1. Liquidity
2. Investment horizon
3. Taxes
4. Regulations
5. Unique circumstances
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Objectives
The commonly stated investment goals are:
Income: To provide a steady stream of income through regular interest/ dividend payment.
Growth: To increase the value of the principal amount through capital appreciation.
Stability: To protect the principal amount invested from the risk of loss.
Since income and growth represent two ways by which return is generated and stability
implies containment or even elimination of risk, investment objectives may be expressed
more succinctly in terms of return and risk. As an investor, you would primarily be interested
in a higher return and a lower level of risk.
However, return and risk typically go hand in hand. So you have to ordinarily bear a
higher level of risk in order to earn a higher return. How much risk you would be willing to
bear to seek a higher return, depends on your risk disposition. Your investment objects shouldstate your preference for return relative to your distasted for risk.
You can specify your investment objectives in one of the following ways:
Maximize the expected rate of return, subject to the risk exposure being held within a certain
limit.
Minimize the risk exposure, without sacrificing a certain expected rate of return .
Which of these two should you adopt? My recommendation is for you to start by defining
how much risk you can bear or how much you can afford to lose, rather than specifying how
much money you want to make. The risk you can bear depends on two key factors:
a) Your financial situation, and
b) Your temperament.
To assess your financial situation, answer the following questions: what is the position
of your wealth? What major expenses can be anticipated in the near future? What is your
earning capacity? How much money can you lose without seriously hurting your standard of
living? A careful and realistic appraisal of your assets, expenses, and earnings is basic to
defining your risk tolerance.
After appraising your financial situation, assess your temperamental tolerance for risk.Even though your financial situation may permit you to absorb losses easily, you may
become extremely upset over small losses. On the other hand, despite a not-so- strong
financial position, you may not be easily ruffled by losses. Understand your financial
temperament as objectively as you can.
Your risk tolerance level is set by either your financial situation or your financial
temperament, whichever is lower. Of course, you must realize that your risk tolerance cannot
be or should not be defined too precisely and rigorously. For practical purposes, it suffices if
you define it as low, medium, or high. Once you have articulated your risk tolerance
realistically in this fashion, it will sere as a valuable guide in your investment selection. It
will provide you with a useful perspective and prevent you from being a victim of the wavesand manias that tend to sweep the market from time to time.
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2.3.1 PORTFOLIO MANAGEMENT FRAMEWORK
Investment management, also referred to as portfolio management, is a complex process or
activity that may be divided into seven broad phases:
Specification of investment objectives and constraints
Choice of asset mix
Formulation of portfolio strategy
Selection of securities
Portfolio execution
Portfolio rebalancing
Performance evaluation
Here we discus the process of portfolio management in terms of these phases. For pedagogic
convenience, they are treated sequentially. However, it must be emphasized that they are
interrelated as shown in exhibit.
2.4. Interrelationship among Various Phases of Portfolio Management
2.5 SPECIFICATION OF INVESTMENT OBJECTIVES AND CONSTRAINTS
The first step in the portfolio management process is to specify the investment policy
which summarises the objectives, constraints, and preferences of the investor. The investment
policy may be expressed as follows
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RISK ASSESSMENT
Financial advisers, mutual funds, and brokerage firms have developed risk questionnaires to
help investors determine whether they are conservatives, moderate, or aggressive. Typically,
such risk questionnaires have 7 to 10 questions to guage a persons tendency to make risky or
conservative choices in certain hypothetical situations. While these risk questionnaires are notprecise, they are helpful inn getting a rough idea of an investors risk tolerance.
2.6 CONSTRAINTS
In pursuing your investment objective, which is specified in terms of return requirement
and risk tolerance, you should bear in mind the constraints arising out of or relating to the
following factors:
2.6.1 Liquidity: Liquidity refers to the speed with which an asset can be sold, without suffering
any discount to its fair market price. For example, money market instruments are the most
liquid assets, whereas antiques are among the least liquid. Taking into account your cash
requirements in the foreseeable future, you must establish the minimum level of cash youwant in your investment portfolio.
2.6.2 Investment Horizon: The investment horizon is the time when the investment or part thereof
is planned to be liquidated to meet a specific need. For example, the investment horizon may
be ten years to fund a childs college education or thirty years to meet retirement needs. The
investment horizon has an important bearing on the choice of assets.
2.6.3 Taxes: What matters finally is the post-tax return from an investment. Tax considerations
therefore have an important bearing on investment decisions. So, carefully review the tax
shelters available to you and incorporate the same in your investment decisions.
2.6.4 Regulations: While individual investors are generally not constrained much by law,
institutional investors have to conform to various regulations. For example, mutual funds in
India are not allowed to hold more than 10 percent of the equity shares of a public company.
2.6.5 Unique Circumstances: Almost every investor faces unique circumstances. For example, an
individual may have the responsibility of looking after ageing parents. Or, an endowment
fund may be precluded from investing in the securities of companies making alcoholic
products and tobacco products.
2.7 SELECTION OF ASSET MIX
Based on your objectives and constraints, you have to specify your asset allocation,
that is, you have to decide how much of our portfolio has to be invested in each of thefollowing asset categories:
Cash
Bonds
Stocks
Real estate
Precious metals
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The thrust of our discussion will be on determining the appropriate mix of bonds and
stocks in the portfolio. Before we examine this issue, note the following:
The first important investment decision for most individuals is concerned with their education
meant to build their human capital.
The most significant asset that people generally have during their early working years is their
earning power that stems from their human capital. Purchase of life and disability insurance
becomes a pressing need to hedge against loss of income on account of death or disability.
The first major economic asset that individuals plan to invest in is their own house. Before
they are ready to buy the house, their savings are likely to be in the form of bank deposits and
money market mutual fund schemes. Referred to broadly as cash, these instruments have
appeal because they are safe and liquid.
2.8 FORMULATION OF PORTOLIO STRATEGY
After you have chosen a certain asset mix, you have to formulate an appropriate portfolio
strategy. Two broad choices are available in this respect, an active portfolio strategy or a
passive portfolio strategy.
2.8.1 Active portfolio strategy
An active portfolio strategy is followed by most investment professionals and aggressive
investors who strive to earn superior returns, after adjustment for risk. The four principal
vectors of an active strategy are:
Market timing
Sector rotation
Security selection
Use of specialised concept
2.8.2 Passive Strategy
The passive strategy, on the other hand, rests on the tenet that the capital market is
fairly efficient with respect to the available information. Hence, the search for superior
returns through an active strategy is considered futile.Operationally, how is the passive
strategy implemented? Basically, it involves adhering to the following two guidelines:
1. Create a well- diversified portfolio at a pre-determined level of risk.
2. Hold the portfolio relatively unchanged over time, unless it becomes inadequately diversified
or inconsistent with the investors risk-return preferences.
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Chapter 3
EYE VIEW OF BANKING
SECTOR
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3.1 INTRODUCTION
It is a common assumption that the success of an organization depends on the
execution of strategy. Empirically it has been proved that an equally, if not more, important
factor is that the organization is in the right market or geography at the right time. Changes in
the environment in fact play a vital role in the success or failure of an organization.
Change is continuous and affects organizations in various ways. Changes usually take
the form of trends that affect economic markets substantially. Organizations, therefore, need
to understand these trends and how they impact the economies in which they operate. These
studies are best analyzed and understood at the industry level. The banking industry in India
is no exception.
This article looks at the changes in the business environment and the emerging trends
discernible as a consequence and study some strategies necessary to succeed in that
environment as they relate to the Indian banking industry. The discussion covers the
following:
Factors that have set in force these trends
Changes actually witnessed in the new environment
Success strategies needed in banking to cope with these trends
3.2 Four factors
Four factors are behind the changes seen in the environment- globalization; liberalization;
customers; technology.
N.R. Narayana Murthy, Chief Mentor of Infosys Technologies, has said,
Globalisation is about producing where it is most cost effectives, sourcing capital from
where its cheapest and selling it where it is most profitable.
As Mr. Murthy says, globalization forces organizations to accept the best practices in
their industry drawn from different parts of the globe. They have to adapt to and embrace
global standards, practices, systems and procedures if they are to remain competitive. Today
Indian banks are very much part of the global framework.
Globalization has impacted even the rural sector and changed the manner in which
banks are approaching this segment. Today, improved infrastructure and forward and
backward linkages have made rural areas an increasingly attractive market. Technology hasbrought about new initiatives such as ITCs e-chaupal that provide farmers greater access to
information and to markets. Banks have also brought about innovations such as village
knowledge centres.
The effects of globalization have also been felt in the retail segment. With the entry of
MNCs, retailers have come more efficient and stepped up their marketing strategies. They
have access to a much wider range of products that can be marketed locally. With retailer
even in tier II cities selling products from all parts of the globe, their requirements from the
banking system have undergone a change.
Growth resulting from globalization can perhaps be seen most in the SME segment.With goods from overseas flooding local markets, this segment had to step up its efficiency in
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terms of production and pricing strategies. With MNCs establishing a presence here, the
opportunities to supply them with goods and services have shown a quantum jump.
It should, however, be noted that the opening up of the economy and the banking
sector in particular, has been skillfully handled by the Government as well as the regulator.
This brings us to the second factor that has brought about dramatic changes.
The reform process as it affected Indian banking can be traced back to the
Narasimham committee recommendations. These laid down an entirely new set f rules for
banks to adhere to. These impacted the capital structure and areas of business. They have
brought about dramatic changes.
One major development has been the entry of a variety of institutions into banking.
Over the past five years, the distinctions between banking and other financial services have
got blurred. Banks have been entering fields such as insurance, sale of mutual fund products,
gold bullion, facilitating payment of bills, offering demat accounts and so on.
Simultaneously other institutions, not traditionally associated with banking, areoffering banking services and products. Non-banking finance companies accept deposits and
finance individuals. Mutual funds, post offices and insurance companies offer many services
that were traditionally offered only by banks. The entry of these institutions into the banking
sector has impacted the way banking is carried out.
In addition, the liberalization process opened up the industry to foreign banks as well
as the Indian private sector. This ushered in a new generation of practices, systems, methods,
tools and banks themselves. While banks themselves had to cope with these changes, the
ultimate beneficiaries of the process were the customers. This brings us to the next factor that
changed the environment.
3.3 NEW CUSTOMER PROFILE
In any environment, multiple choices help in empowering the customer. Indian
banking is no exception. The changes in Indian banking have led to a change in the profile of
the customer. Following nationalization, a whole new set of customers gained access to
banks. The most economically backward person was encouraged to enter the portals of a
bank branch. Along with massive branch expansion huge customer mass was encouraged to
seek the help of banks. But the most dramatic change was yet to take place. Even ten years
ago, banks had strict hours for business. Most bank branches opened at 10 in the morning and
closed at 2 in the afternoon. Customers had to call at a branch to transact his business. Today
the banker-customer relationship is totally different.
Multiple choices have empowered the customer. Today most customers of the bank
do not enter the branch premises for their basic transaction needs. Transactions are done
through delivery channels such as ATMs, over the internet and even over the mobile. Many
banks have introduced extended business hours such as 8 to 8 banking and Sunday
banking.
More important, changing demographics have changed the customer profile in favour
of youth with better education and qualifications. This too has changed the environment in
which banks operate. Almost 100 percent of this customer segment is techno-savvy and this
brings us to the next factor that has changed the environment.It is estimated that by the year
2011 the below 30 years age group will form a larger segment of the population than it does
today. The country stands to benefit from this change.
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3.4 TECHNOLOGY EXPANSION
The introduction of technology came almost as a natural corollary of liberalization.
Liberalization opened the doors to new players who invested in technology from the very
beginning. Public sector banks followed suit. This opened up a new world of banking which
benefited the banks as well as the customers. The customer was empowered to carry out thebulk of his transactions electronically without visiting the branch. It also brought in the
concept of anytime, anywhere banking. As a consequence branches too became flexible in
their timings trying ultimately to reach a situation of 24*7 services.
Technology enabled and popularized the use of plastic. This added to the freedom of
the customer to access banking facilities from multiple points. Technology enabled banks to
take the drudgery out of banking transactions, and allowed bank to collect and analyse data
on customers and markets that would enable them to design customer centric products.
This has created a situation in which the requirements of customers- mostly composed
of younger, financially upward mobile persons- are matched by the design and deliverymechanism of banks vis--vis products and services. Most banks are also moving towards the
provision of wealth management and similar advisory services.
Globalization is a natural corollary to the opening up of borders and countries. The
ultimate effect of globalization will be witnessed when people operated in a world without
borders. People will have a commercial world with standard practices and procedures that
will enable everyone everywhere to source products and services at their most efficient price.
3.5 THE TEN CHALLENGES
In the backdrop of the changes experienced in the environment, the banking industry will
have to face and address ten challenges:
1. Retail renaissance,
2. Seeking and servicing new markets,
3. The decision to outsource.
4. Financial inclusion,
5. Monitoring credit quality,
6. Achieving comprehensive governance of risk management,
7. Basel II: driving enterprise- wide change,
8. Corporate governance: moving to greater transparency,
9. Grooming the next generation of talent and
10. Consolidation.
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3.5.1 RETAIL RENAISSANCE:
In the coming years, the booming retail market will be another challenge that banks
will have to address. Changing demographics and profiles of customers will throw up greater
demands in terms of services and products that banks will have to design and deliver. Banks
will also have to enter areas where they have relatively less experience and expertise.Customers will become more demanding in terms of the range of products and services. A
major challenge faced by banks is that any product introduced by a bank is likely to be
commoditised by being replicated by other banks almost immediately.
3.5.2 NEW MARKETS:
The twin forces of globalization and liberalization will result in a challenge as well
as an opportunity. Changes in regulations and procedures, coupled with technology enable a
variety of products and services to be sourced from anywhere in the globe. New skills are
needed as a result of these forces. These result in new markets and customer segments
emerging.
A case in point is the BPO industry which is gradually assuming critical mass. In a more
mundane sense, banks are now looking to establish a physical presence in other countries so
that they can serve segments of expatriates as well as Indian industries establishing a
presence abroad, more effectively.
3.5.3 THE OUTSOURCING OPTION:
As the habits of the work force change, banks will have to tackle the problem and
make use of the opportunities available. Increasingly while collar workers are looking for
ways to use their time more effectively. Leisure time and quality of life are a priority for
many. They seek flexible working hours. Charles Handy has pointed out that by the year
2015 it will be the norm for most people to have two jobs. The future trend will be to have
fewer permanent employees. Banks will have to face the issue of outsourcing most of the
activities other than core functions that are done in house at the present time.
3.5.4 FINANCIAL INCLUSION:
The traditional ways of disbursing credit will have to be dispensed with in times to
come. Bringing the part of the population that has hitherto been denied access to banking
services is now an area of focus for the banking industry. It is estimated that out of every 100
only 31 have a bank account. The process of bringing these people into the banking systemknown as financial inclusion has been made feasible by technology. User friendly ATMs
operating on a biometric identification system as well as the use of mobile phones is part of
these initiatives. Today it is understood that the rural segment is becoming a market with
great potential. The focus is on providing what is known as soft infrastructure or
information and communication technology in rural areas. This expands the reach of the
banking system, government as well as private and public players.
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3.5.5 MONITORING CREDIT QUALITY:
As banks operate in a culture of greater efficiency and meet the demands of the
market place, the emphasis will shift increasingly to the quality of assets of banks. This will
call for improved monitoring of the credit being dispensed. More focused and better analytics
will have to be employed to ensure this. Technology can be leveraged by banks to strengthen
their information systems so that monitoring becomes more effective.
3.5.6 RISK MANAGEMENT:
In the context of the increasingly demanding environment, risk management measures
assume vital importance. The aim of risk management measures is to put in place a business
model based on controlled growth with proper assessment of all the risk factors involved.
Banks will devise an integrated approach to risk management.
3.5.8 BASEL II NORMS:
The implications of globalization are felt in the movement towards Basel II capital
norms. Developments of new financial products, globalization of institutions are all reflectedin the need for risk sensitive capital requirements. This in turn will have implications for
systems in banks.
Analytics for credit appraisal, information and reporting systems, controls and other
measures will have to be geared up to meet the requirements thrown up by the new accord.
Though one part of the Basel II is to do with compliance it is also an opportunity for banks to
improve their risk management systems and make use of capital more efficient.
3.5.9 CORPORATE GOVERNANCE:
Globalization and the goal of banks to operate globally will call for better corporate
governance practices. These practices will enable banks to compete with international
players. The required changes will take the form of more transparent reporting. Banks will
also have to put in place systems by which stakeholders will have better access to
information. There will also be oversight by management, by individuals not directly
involved with management but are stakeholders, by the regulator as well as traditional checks
and balances such as auditors.
3.5.10 GROOMING THE NEXT GENERATION TALENT:
With processes, systems, markets and the environment rapidly changing, the banking
system will have to prepare itself for grooming the next generation of talent. Systems of
recruitment, placement and incentivising talented personnel will be an other challenge. Thiswill take the form of reskilling a rapidly aging work force and providing an environment that
can attract and retain specialists and others in the younger generation of workers.
Further, the system will have to provide a work culture where leadership skills are
nurtured. These skills will go beyond the traditional parameters of professional management
and encompass the demands of today for an entrepreneurial outlook and attitude.
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3.5.11 CONSOLIDATION:
The way forward will call for players who will be able to approach global standards in
terms of size. While the present robust growth rates in the banking industry are likely to be
maintained in the years to come, if we are to reach a global scale, organic growth alone may
not be enough.
The industry will have to prepare itself for consolidation. However, consolidation
should result in synergies with regard to geographies, organizational cultures, technology and
so on. The days ahead for Indian banks will be turbulent but interesting.
Only banks that can adapt to change and take proactive steps will survive.
Understanding the emerging trends, shaping strategies based on the anticipated changes and
executing them effectively will be the key to success. Indias IT industry has demonstrated
that we are capable of seizing opportunities and making a positive global impact. The Indian
banking industry too will one day be the subject of another global success story.
Chapter 4
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Company Profile
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HSBC IN INDIA
The anecdotes of the HSBC group in India can be traced back to October 1853 when the
mercantile bank of India, London, and china was founded in Bombay. Starting with an
authorized capital of Rs 5 Million, the Mercantile Bank soon opened offices in London,
Chennai, and Colombo, Kandy followed by Kolkata, Singapore, Hong Kong and Shanghai by1855.
The acquisition in 1959 by the Hong Kong and Shanghai Banking Corporation Limited of the
Mercantile Bank was a decisive factor in laying the foundation for todays HSBC Group.
Founded in 1865 to serve the needs of the Merchants of the China coast and finance the
growing trade between China Europe and the United States, HSBC has been an international
bank from its earliest days.
Through the 1990s, HSBC has vigorously developed its role as one of the leading banking
and financial services organizations in the world. Its strategy of managing for value emphasis
the groups unique balance of business and earnings between older, mature economies and
faster-growing emerging markets.
The organizations adaptability, resilience and commitment to its customers have further
enabled it to survive through turbulent times and prosper through good times over the past
150 years.
HSBC as a Group it is into other fields. In India 2566o employees are working in 89 offices
of HSBC Group.
HSBC Group entities in India are as follows:
HSBC Asset Management (India) Private Limited
HSBC Electronic Data Processing (India) Private Limited
HSBC Insurance Brokers (India) Private Limited
HSBC Operations and Processing Enterprise (India) Private Limited
HSBC Software Development (India) Private Limited
HSBC Private equity management (Mauritius) Private Limited
HSBC Professional services (India) Private Limited
HSBC Securities and capital markets (India) Private Limited
HSBC The Hong Kong and Shanghai Banking Corporation Limited (HBAP)
HSBC Securities and capital markets (India) Private Limited:
HSBC Securities and capital markets (India) Private Limited has two main business lines. Its
institutional and proprietary broking business has seats on two of Indias premier stock
exchanges, the Bombay Stock Exchange and the National Stock Exchange. It deals in Indiansecurities for both Indian and international institutions and for select retail clients and is
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backed by an extensive research team. The corporate finance and advisory business offers a
full range of integrated investment banking services in India and internationally i.e. this
group provides both public and private sector with strategic financial advice and execution
capability in the areas like Mergers & Acquisitions, Capital Market Transactions,
privatizations etc..
HSBC Asset Management (India) Private Limited:
HSBC Asset Management (India) Private Limited, a subsidiary of HSBC Securities and
capital markets (India) Private Limited, is the investment manager to HSBC Mutual Fund.
This commenced Asset management business in November 2002. In India it has 16 offices
with an employee base of 151.
HSBC Electronic Data Processing (India) Private Limited (HDPI):
HSBC Global Resourcing is a fundamental component of HSBC to deliver share holder value
and competitive service through efficient, cost effective operations. HSBC Global Resourcing
in India employs over 11000 professional across 5 centers in Hyderabad, Vizag, Bangaloreand Kolkata who provide customer service to HSBC customers in US, UK,
European Union, Middle East and Asia Pacific. The company started its operations in July
2000 at Hyderabad.
HSBC Insurance Brokers (India) Private Limited:
HSBC Insurance Brokers (India) Private Limited was licensed in August 2003 to provide
advice and innovative solutions in very specialist areas of business including claims handling
services of international standards to HSBC Banks Corporate, Institutional, commercial,
HNWI. It also works with the bank on various initiatives for the SME as well as PFS
segments.
HSBC Professional services (India) private Limited:
HSBC Professional services (India) private Limited provides internal audit services to several
of the HSBC Groups internal audit units worldwide, including reviews of the IT, Treasury,
asset management, Private Banking and Insurance functions as well as centralized operations
such as Group service centers.
HSBC Software Development (India) private Limited:
HSBC Software Development (India) Private Limited is also known as Global technologyCenter (GLT) was incorporated in the year 2002 in Pune. The center has been established to
develop software solutions for the Groups global operations and to provide ongoing IT
maintenance or support services, new application development, functional and technical
architectural services with a special focus on Mainframe, AS400 Web, Vision+, Business
intelligence etc.
HSBC Private Equity Management (Mauritius) private Limited:
HSBC Private Equity management ( India) Private Limited is a Private Equity investment
advisor and a subsidiary of HSBC Private Equity Management (Mauritius) Limited. It
manages the HSBC Private Equity India Fund limited. Apart from the HSBC Group,
Shareholders in the fund include investors from the US, Europe, the Middle East and Asia.
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HSBC The Hong Kong and Shanghai Banking Corporation Limited (HBAP):
HSBC is mainly into three types of activities. They are as follows
1. Branch Banking
2. Wealth Management
3. Acquisition
Branch Banking:
Branch Banking includes mass banking. This segment mainly composed of Banking
assistants, Platform Services, Teller Supervisors. This serves up to only walk in customers.
All Mass Banking transactions takes place here. To attain these services the minimum
qualifications is to be required is, the customer should hold a Current/Savings account in
HSBC. A minimum of Rs. 25000/- of Qtly balance is to be maintained. Savings account
offers an interest of 3.5% and also provides the facility of ATM card to its customers and the
important thing here is that unlimited numbers of transactions are allowed through ATM card
in a financial year. But cash limit is Rs. 25000/- per day. HSBC provides the privilege to
draw money from any VISA ATM at free of cost.
Wealth Management:
Wealth Management is most Prestigious service that is being offered by HSBC to its
customers. If we observe, the disposable income of people in India has increased from last
few years because of the IT & its ripple effects. So it made clear that its easy to earn money.
But the question is that how to retain that? Discounting principle of economics speaks about
importance of investment. But that was made should be wise and add value to the invested
money. The days has gone to prefer investments. In fixed deposit or provident fund or insavings account as the returns are very less and cannot meet the financial goals of the
investor. The days to invest in stock have come. But risk is directly proportional to the
returns. So, though money, Inflation and Stock fluctuations, unknown requirements baffle to
reach your financial goals. So keeping all these effects in mind we (HSBC) Came with wealth
Management tools that helps you to achieve your financial goals in time and helps you to
relieve from all these headaches. In a single sentence the area of our Expertise is Wealth
Management.
The following are the packages that are offered by us (HSBC) to its customers in the area of
Wealth Management.
1. Financial Planning services
2. Power Vantage
3. Premier
Financial Planning Services:
Financial Planning Services is the tool which helps very much for a corporate employee.
Though they knew about stock its not possible for them to closely observe the Dalal Street, so
HSBC offers you tailor made financial plans to add value to your Assets. The uniqueness of
our Bank is that it is the only PROCESS ORIENTED BANK in India. In this tool FinancialPlanning Manager who is an expertise in Financial Planning offer you tailor made plan. In
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this category independent Advice, A close look at your investments, Monthly Reports to the
customers are some of the privileges offered to its customers. All these services offered are
absolutely at free of cost, as HSBC views its customer as KING.
POWER VANTAGE:
Power Vantage is another powerful tool that is offered to its customers. This offers all the
privileges offered by Financial Planning Services more-over Power Vantage Relationship
Manager who is an expert and experienced helps to plan the Assets.
It provides 24/7 service, separate service desk in front office, separate teller counters to
Power Vantage customers, the privilege of paying cheque payable at par, no bounce cheque
protection, preferential processing fee on home loans and personal loans are the privilege that
are provided by the Bank to its customers of Power Vantage and about Rs. 50000/- can be
drawn from ATM.
To be a Power Vantage customer he has to maintain Average Qtly balance of one lakh or
should have relationship like home loan or minimum investment of Five lakh Rupees inMutual Funds.
Key PowerVantage Plus Benefits
Dedicated Relationship Manager - a PowerVantage Plus relationship manager is
assigned to assist you in your banking and financial planning needs.
E- Financial Planner2 - Online tool that helps you get a basic understanding of the
financial planning process.
Unlimited Free Transactions (Cash withdrawals and balance enquiries) at 23,500
HSBC and non- HSBC Visa ATMs in India using your PowerVantage debit card.
Dedicated Service Desk and Teller Counters to assist you with your banking needs.
Free Cheques payable at par (CPP) facility in all cities where HSBC has branches,
helping you save on outstation clearing time and costs.
Joining Fee Waiver and 50% off on the annual fee of your credit card3
Higher Cash Withdrawal limit of up to Rs. 50,000 across 20,000 HSBC and non-
HSBC Visa ATMs in India and over 1 million ATMs overseas4
.
Free SmartVantage Magazine - A quarterly magazine that helps you keep yourself
updated on the market scenario besides bringing you information on lifestyle interests that are
relevant to your profile.
Use yourPowerVantage Plus Debit Card for purchases of up to Rs. 50,000 per day
at over 3,20,000 merchant establishments in India and over 14 million such establishments
overseas.
PREMIER:
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HSBC Premier is an individually tailored package of exclusive premier banking services that
can be accessed from anywhere you choose to live or work. In this package a minimum
Relationship of Rs.25 lakhs is to be maintained. This customer is treated as International
customer. Simply one cannot say any financial service that is not provided to these
customers. Premier Relationship Manager chalks out financial plan to these customers, these
customers enjoy all the facilities provided under FPS, PV and more-over they have power towithdraw an amount up to one lakh per day from ATM. These customers enjoy the facility of
HOME BANKING SERVICES which are absolutely free, Routine payments are made on
your behalf. Thus the Bank feels that these customers are most important customers to the
Bank.
Advantages of banking with HSBC Premier include:
Just one call will initiate the process to set up an HSBC Premier account in your new
country of residence. Your credit cards, debit cards and cheque books will arrive within 10
working days
A local HSBC Premier Relationship Manager will assist you in planning for your
financial needs
View your HSBC Premier accounts from anywhere in the world with our unique
Global View online banking service.
ACQUISITION TEAM:
The main function of this team is to acquire customers to the Bank this team is generally
headed by Sales manager.
WHY HSBC ONLY ???????????:
Most of the people may say that many of the Banks offer many of these facilities and what
makes HSBC to stand out from them. For this there are many specialties that makes us as
outstanding. Some of them are as follows
1. HSBC is the one and only Process Oriented Bank in India.
2. Rated as safest bank in India by Business Today-04
3. HSBC is the only Bank that uses the advanced methods such as PERSONAL FINANCIAL
REVIEW, FINANCIAL NEED PLAN, WEALTH EXPLORING PLAN to each and every
customer and prepares a tailor made plan to individual to reach his Financial goals on time.
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Financial Highlights
For the year 2007
Total operating income up 25.0 per cent to US$87,601 million (2006:
US$70,070 million).
Net operating income up 12.7 per cent to US$61,751 million (2006: US$54,793million).
Group pre-tax profit up 9.6 per cent to US$24,212 million (2006: US$22,086million).
Profit attributable to shareholders of the parent company up 21.2 per cent toUS$19,133 million
(2006: US$15,789 million).
Return on average invested capital of 15.3 per cent (2006: 14.9 per cent).
Earnings per ordinary share up 17.9 per cent to US$1.65 (2006: US$1.40).
At the year-end
Total equity up 17.8 per cent to US$135,416 million (2006: US$114,928million).
Customer accounts and deposits by banks up 23.3 per cent to US$1,228,321million (2006:
US$996,528 million).
Risk-weighted assets up 19.7 per cent to US$1,123,782 million (2006:US$938,678 million).
Dividends and capital position
Total dividends declared in respect of 2007 of US$0.90 per share, an increaseof 11.1 per cent
over dividends for 2006; fourth interim dividend for 2007 of US$0.39 per share,an increase of
8.3 per cent.
Tier 1 capital ratio of 9.3 per cent and total capital ratio of 13.6 per cent.
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Chapter 5
Market Survey
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5.1 MAJOR FINDINGS OF THE STUDY:
1. Majority of the people are interested in investing in real estates and bank deposits
2. While investing, People are taking into account the investment attributes like rate of return,
risk factor, duration, tax, good track record of the company. Majority of the people are
seeking to get 50% of the returns from their investments.
3. The people are interested to invest in less risky areas and willing to go for long term
Deposits. The number of people, who are looking into the brand name and company
refutation before investment stands 80%.
4. The people are more aware of bank deposits and real estates but still there are people who are
not aware of bank deposits. So, the banks can cater that market.
5. There are more than 50% of the people are not aware of mutual funds. They are seeking to
get awareness. People are aware of mutual funds but they do not know various schemes
available.
6. Majority of the people are willing to get information through, T.V Advertisements, agents
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5.2 ANALYSIS AND INTERPRETATION:
INVESTMENT PATTERN OF INDIVIDUALS
Frequency Percent Valid Percent Cumulative %
Bank deposits 28 28.0 28.0 28.0
Shares and bonds 18 18.0 18.0 46.0
Real estates 30 30.0 30.0 76.0
Mutual funds 8 8.0 8.0 84.0
Post office deposits 4 4.0 4.0 88.0
Others 12 12.0 12.0 100.0
Total 100 100.0 100.0
bank deposits
shares&bonds
real estates
mutual funds
post of f ice deposits
others
Pies show counts
bank deposits
28.00%
shares&bonds
18.00%
real estates
30.00%
mutual funds
8.00%
post office deposits
4.00%
others
12.00%
The above diagram and cross table analysis shows that real estates(30%) is top most preferred
one followed bank deposits (28%) shares and bounds 18%and mutual funds(8%). So banks
have to concentrate on real estates by giving loans against land. The banks can introduces
certain new schemes to capture the business.
5.2 Analysis of Investment Attributes:
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Rate of
Return Risk factor Liquidity
Tax
shield Duration
Transaction
ease
Good
Track
Record
N 100 100 100 100 100 100 100
0 0 0 0 0 0 0
Mean 1.82 1.48 2.08 2.02 2.18 2.10 2.68
Median 2.00 1.00 2.00 2.00 2.00 2.00 3.00
Mode 2 1 2 3 3 2 3
Std. Deviation .744 .674 .720 .974 .796 .785 .680
Variance .553 .454 .519 .949 .634 .616 .462
Skew ness .305 1.084 -.121 -.041 -.336 -.179 -1.863
Std. Error of
Skew ness.241 .241 .241 .241 .241 .241 .241
Kurtosis -1.129 -.038 -1.043 -1.972 -1.342 -1.349 1.837
Std. Error of
Kurtosis.478 .478 .478 .478 .478 .478 .478
Range 2 2 2 2 2 2 2
Sum 182 148 208 202 218 210 268
Percentiles 25 1.00 1.00 2.00 1.00 2.00 1.00 3.00
50 2.00 1.00 2.00 2.00 2.00 2.00 3.00
75 2.00 2.00 3.00 3.00 3.00 3.00 3.00
5.2.1 Correlations between Income Levels with Investment Attributes
Control
Variables
Rate of
Return
Risk
Factor Liquidity Tax shield Duration
Transaction
Ease
Good track
Record
Correlation 1.000 .304 -.102 -.012 .241 .190 .099
Significance
(2-tailed). .002 .317 .906 .016 .060 .330
Df 0 97 97 97 97 97 97
Correlation .304 1.000 -.020 .039 .111 -.009 .056
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Significance .002 . .843 .701 .273 .933 .582
Df 97 0 97 97 97 97 97
Correlation -.102 -.020 1.000 -.175 -.047 -.117 -.051
Significance .317 .843 . .083 .648 .249 .615
Df 97 97 0 97 97 97 97
Correlation -.012 .039 -.175 1.000 -.294 -.281 .013
Significance .906 .701 .083 . .003 .005 .897
Df 97 97 97 0 97 97 97
Correlation .241 .111 -.047 -.294 1.000 .479 .234
Significance .016 .273 .648 .003 . .000 .020
Df 97 97 97 97 0 97 97
Correlation .190 -.009 -.117 -.281 .479 1.000 .103
Significance .060 .933 .249 .005 .000 . .312
Df 97 97 97 97 97 0 97
Correlation .099 .056 -.051 .013 .234 .103 1.000
Significance .330 .582 .615 .897 .020 .312 .
Df 97 97 97 97 97 97 0
1=5000-10000. 2=10000-15000. 3=15000-20000. 4=20000-25000. 5=25000-35000. 6=Above
35000
5.2.2. Rate of Return
Frequency Percent
Vali
d
1%-30%38 38.0
30%--65% 42 42.0
65%--100% 20 20.0
Total 100 100.0
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65-10030%--65%0%-30
Fre
quency60
40
20
0
Risk Factor
Form the above diagram it is quite clear that most of the Peoples expected rate of return is30%-65%.very less number of people are aiming to get 100% returns. The38%of the people
are willing to invest in those area where they can get short term gains.
5.2.3 Risk factor
65%--100%30%--65%1%-30%
F
re
q
u
e
n
c
y
50
40
30
20
10
0
Frequency Percent
Valid 0%-30 62 62.0
30%--65% 28 28.0
65-100 10 10.0
Total 100 100.0
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65%-100%30%-65%0%-30%
F
r
e
q
u
e
n
c
y
50
40
30
20
10
0
Tax Shield
People are not willing to under go more risk. If we correlate with the above option, we can
easily understand that majority want get, rate of return 50% by taking 25%of risk. The people
(62%) are interested to invest in less risky areas.
5.2.4 Liquidity
65%-100%30%-65%0%-30%
Frequency
50
40
30
20
10
0
Liquidity
It is very descriptive that most of the people are going for more or most liquidity type of
investment.30%of the people wants 100% liquidity. These people are suitable for bank
deposits. Whereas 48% of them wants 30%-65% of liquidity. These people are suitable for
shares and bonds. The rest of them (22%) can go for real estate where duration is mostly
considered.
5.2.5 Tax shield
Frequenc
y Percent
Valid 0%-30% 22 22.0
30%-65% 48 48.0
65%-
100%30 30.0
Total 100 100.0
Frequency Percent
Valid 0%-30% 46 46.0
30%-65% 6 6.0
65%-
100%48 48.0
Total 100 100.0
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65%-100%30%-65%0%-30
Frequency
40
30
20
10
0
Transaction Ease
The figure shows clearly 48% of the people are willing to pay the TAX from their earnings.
46% of the people are not willing to pay tax. So the banks should Prepare new schemes i.e.
like Tax fund in mutual funds, concentrate those people youre not willing to pay tax.
5.2.6 Duration
The people are mostly interested in
lone term investment i.e. 42%. 34% of the
people are willing to go for, medium term
investments. The banks can seek in to long
term deposits and fixed deposit scheme as
The people are willing. There is heavy opportunity for the banks to expand in this sector.
5.2.7 Transaction Ease
We know that as the procedure is more the security also is more. But people are seeking for
less procedure transactions (36+38=74). The respondents, who are willing to under go more
transactions, are only 26.
Frequency Percent
Valid 0%-30 24 24.0
30%-65% 34 34.0
65%-100% 42 42.0
Total 100 100.0
Frequency Percent
Valid 0%-30 26 26.0
30%-65% 38 38.0
65%-
100%36 36.0
Total 100 100.0
65%-100%30%-65%0%-30
Frequency
50
40
30
20
10
0
Duration
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5.2.8 Good Track Record
Here it is evident from the output that most
of the people are looking at brand name
and popularity of the company where they are interested in investing. The people who are
interested in branded company are 80% which we have to consider most .so the company
must try to build good name and fame among the customers.
Frequency Percent
0%-30% 12 12.0
30%-65% 8 8.0
65%-100% 80 80.0
Total 100 100.0
65%-100%30%-65%0%-30%
80
60
40
20
0
Fr
e
q
u
e
n
c
y
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Analysis using Techniques
Chi-Square Analysis:
5.3. Awareness Of investment options
5.3.1 Bank Deposits
HO: There is no relationship between bank deposits and people profession (The two variables
are independent of each other).
Ha: There is relationship between bank deposits and their profession (the two variables are
dependent of each other).
Bank Deposits Total
1%-25% 25%-50% 51%-75% 76%-100% 1%-100%
Businessmen 10 6 12 16 44
Employees 2 12 16 12 42
Others 4 2 8 0 14
Total 16 20 36 28 100
Form the table it is clear that 64 out of 100
Chi-Square Tests for Bank deposits and awareness among people
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 16.350(a) 6 .012
Likelihood Ratio 20.817 6 .002
Linear-by-Linear Association .986 1 .321
N of Valid Cases 100
a.3 cells (25.0%) have expected count less than 5. The minimum expected count is 2.24.
The actual significance level (p-value) of 0.012 in the out put implies that the chances ofgetting a chi-Square value as high as 16.350 when there is no relationship between bank
deposits and profession are less than 12 in 1000.in other words the apparent relationship
between bank deposits and their profession revealed by the sample data is unlikely to have
occurred because of chance. So we safely reject null hypothesis.
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5.3.2 Shares and bonds
The people who invest in shares and bonds are mostly businessman (12) and employees
(12).It is
Clear from the table that most employees are more awareness of shares and bonds than
businessman. Only 24% of the people have full knowledge about shares and bounds.
Chi-Square Tests for Shares & Bonds Awareness among people
HO: There is no relationship between awareness of shares & bonds and with people
profession (the both the variables are independent of each other).
Ha: There is relationship between awareness of shares & bonds and their profession (the both
variables are dependent of each other).
a 5 cells (33.3%) have expected count less than 5. The minimum expected count is 2.24.
The actual significance level (p-value) of 0.094 in the out put implies that the chances of
getting a chi-Square value as high as 13.561 when there is no relationship between
Awareness of shares and bonds and peoples profession are less than 94 in 1000. In other
words the apparent relationship between Awareness of shares and bonds and their profession
revealed by the sample data is likely to have occurred because of chance. So we safely accept
null hypothesis.
SHARES AND BONDS Total
0% 1%-25% 26%-50% 51%-75% 76%-100% 0%-100%
Businessmen 10 10 4 8 12 44
Employees 4 6 10 10 12 42
Others 2 2 4 6 0 14
Total 16 18 18 24 24 100
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 13.561(a) 8 .094
Likelihood Ratio 16.817 8 .032
Linear-by-Linear Association .217 1 .641
N of Valid Cases 100
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5.3.3 Mutual funds
MUTUAL FUNDS Total
0% 1%-25% 26%-50% 51%-75% 76%-100% 0%-100%
Businessmen 4 6 4 6 24 44
Employees 0 6 10 10 16 42
Others 2 6 2 4 0 14
Total 6 18 16 20 40 100
The most of the people who invest in mutual funds are mostly businessman (24) then
employees (16).
The awareness of mutual funds among the employees is more when compared to
businessmen. The people who have full knowledge about mutual funds 40 out of 100.but
there are people (60) who have no idea about mutual funds.
Chi-Square Tests for mutual funds and awareness among people.
HO: There is no relationship between awareness mutual funds and with people profession
(the both the variables are independent of each other).
Ha: There is relationship between awareness of mutual funds and their profession (the both
variables are dependent of each other).
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 23.030(a) 8 .003
Likelihood Ratio 29.144 8 .000
Linear-by-Linear Association 7.299 1 .007
N of Valid Cases 100
a 6 cells (40.0%) have expected count less than 5. The minimum expected count is .84.
The actual significance level (p-value) of 0.003 in the out put implies that the chances of
getting a chi-Square value as high as 23.030 when there is no relationship between awareness
of mutual funds and profession are less than 3 in 1000.
In other words the apparent relationship between awareness of mutual funds and their
profession revealed by the sample data is unlikely to have occurred because of chance. So we
safely reject null hypothesis.
Symmetric Measures
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Value
Asymp. Std.
Error(a) Approx. T(b)
Approx.
Sig.
Interval by Interval Pearson's R -.272 .102 -2.793 .006(c)
Ordinal by Ordinal SpearmanCorrelation -.277 .100 -2.858 .005(c)
N of Valid Cases 100
a. Not assuming the null hypothesis.
b. Using the asymptotic standard error assuming the null hypothesis.
c. Based on normal approximation.
5.3.4 Real Estates
REAL ESTATES Total
1%-25% 25%-50% 51%-75% 76%-100% 1%-100%
Businessmen 10 6 12 16 44
Employees 2 12 16 12 42
Others 4 2 8 0 14
Total 16 20 36 28 100
The most of the people who invest in mutual funds are mostly businessman (24) then
employees (16).
The awareness of mutual funds among the employees is more when compared to
businessmen.
Chi-Square Tests for Real Estates and awareness among people.
HO: There is no relationship between awareness of Real Estate and with people profession
(the both the variables are independent of each other).
Ha: There is relationship between awareness of Real Estate and their profession (the both
variables are dependent of each other).
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 16.350(a) 6 .012
Likelihood Ratio 20.817 6 .002
Linear-by-Linear Association .986 1 .321
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N of Valid Cases 100
a. 3 cells (25.0%) have expected count less than 5. The minimum expected count is 2.24.
The actual significance level (p-value) of 0.012 in the out put implies that the chances of
getting a chi-Square value as high as 16.350 when there is no relationship between RealEstate and profession are less than 12 in 1000.in other words the apparent relationship
between Real Estate and their profession revealed by the sample data is unlikely to have
occurred because of chance. So we safely reject null hypothesis.
Symmetric Measures
Value
Asymp. Std.
Error(a)
Approx.
T(b)
Approx.
Sig.
Interval by Interval Pearson's R -.100 .102 -.993 .323(c)
Ordinal by Ordinal Spearman Correlation -.106 .102 -1.052 .295(c)
N of Valid Cases 100
a Not assuming the null hypothesis.
b Using the asymptotic standard error assuming the null hypothesis.
c Based on normal approximation.
5.3.5 Post office deposits
POST OFFICE DEPOSITS Total
0% 1%-25% 26%-50% 51%-75% 75%-100% 0%
Businessmen 8 12 8 6 10 44
Employees 8 18 6 6 4 42
Others 0 8 4 2 0 14
Total 16 38 18 14 14 100
Chi-Square Test for post office deposits that with awareness among people.
HO: There is no relationship between awareness of Post office deposits and with people
profession (the both the variables are independent of each other).
Ha: There is relationship between awareness of Post office deposits and their profession (the
both variables are dependent of each other).
Value df Asymp. Sig. (2-sided)
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Pearson Chi-Square 11.712(a) 8 .165
Likelihood Ratio 15.431 8 .051
Linear-by-Linear Association 1.892 1 .169
N of Valid Cases 100
a 4 cells (26.7%) have expected count less than 5. The minimum expected count is 1.96.
The actual significance level (p-value) of 0.165 in the out put implies that the chances of
getting a chi-Square value as high as 11.712 when there is no relationship between post office
deposits and profession are less than 165 in 1000.in other words the apparent relationship
between post office deposits and their profession revealed by the sample data is likely to have
occurred because of chance. So we safely accept null hypothesis.
Symmetric Measures
Value
Asymp. Std.
Error(a)
Approx.
T(b)
Approx.
Sig.
Interval by Interval Pearson's R -.138 .086 -1.382 .170(c)
Ordinal by Ordinal Spearman Correlation -.116 .095 -1.157 .250(c)
N of Valid Cases. 100
a Not assuming the null hypothesis.
b Using the asymptotic standard error assuming the null hypothesis.
c Based on normal approximation.
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5.3.6 GOLD
GOLD Total
0% 1%-25% 26%-50% 51%-75% 76%-100% 0%
Businessmen 18 12 8 2 4 44
Employees 10 18 6 2 6 42
Others 4 4 6 0 0 14
Total 32 34 20 4 10 100
Chi-Square Test for Investments in Gold that with awareness among people.
HO: There is no relationship between awareness of Investment in Gold and with people
profession (The both the variables are independent of each other).
Ha: There is relationship between awareness of Investment in Gold and their profession
(The both variables are dependent of each other).
Chi-Square Tests
Value df Asymp. Sig. (2-sided)
Pearson Chi-Square 10.976(a) 8 .203
Likelihood Ratio 11.983 8 .152
Linear-by-Linear Association .193 1 .661
N of Valid Cases 100
a 9 cells (60.0%) have expected count less than 5. The minimum expected count is .56.
The actual significance level (p-value) of 0.203 in the out put implies that the chances of
getting a chi-Square value as high as 10.976 when there is no relationship between
Investment in Gold and profession are less than 203 in 1000. In other words the apparentrelationship between Investment in Gold and their profession revealed by the sample data is
likely to have occurred because of chance. So we safely accept null hypothesis.
5.4.0. Current Investments made by the customers.
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mutual funds
real estatesbank deposits
shares&bonds
post off ice deposits
6
mutual funds
10.00%
real estates
30.00%
bank deposits
30.00%
shares&bonds
2.00%
post office deposits
4.00%
6
24.00%
others
The above pie diagram vividly shows that peoples current investment are mostly in real
estates and bank deposits, i.e.30%. Where as only 10% of the total population are opting for
mutual funds .so there is heavy chance for the banks to make investor to invest in mutual
funds. It will be clearer from the above CHART.
5.4.1 Cross tabulation for the peoples current investment and their level of satisfaction.
1=notsatisfied.2=1%-25%.3=26%-50%.4=51%-75%.5=76%-100% Total
not satisfied 1%-25% 26%-50% 51%-75% 76%-100%
Mutual funds 0 0 0 8 2 10
Real estates 0 0 6 12 12 30
Bank deposits 2 4 10 6 8 30
Shares &bonds 0 0 2 0 0 2
Post office
deposits0 0 0 2 2 4
Others 10 4 0 8 2 24
Total 12 8 18 36 26 100
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It is clear from the above that most of the people, who invested in real
estates, are mostly satisfied customers. Customers satisfaction in banks stands 2nd .the other