Portfolio Management Services – An Essential Guide

Portfolio Management Services can guide an investor in choosing the best investment plan that will provide the expected returns as per their income, budget, age and ability to undertake risks and also to mitigate risks.

There are basically two types of portfolio management:

Active Management: Active portfolio management service involves research backed investment decisions to ensure maximum profits to individuals

Passive Management: Passive portfolio management involves dealing with a fixed portfolio designed to match the current market scenario

Following are few objectives of portfolio management:

• Security of Principal investment
• Consistency of Returns
• Capital Growth
• Liquidity
• Marketability
• Diversification of Portfolio

Major steps involved with portfolio management are as follows:

Selecting to meet investment objectives
A portfolio exists to meet specified objectives so the decisions about investment mix and policy must meet these objectives.

Allocate the assets according to priority
After selecting the right mix and policies, prioritize them according to decisions, budgets and resources.

Managing the portfolio
It is to closely monitor the portfolio by managing the time, resource, cost and scope of these investments so that the portfolio remains intact

Communication to the concerned people
Communicating the health of the portfolio to the concerned stakeholders and team is essential to make the portfolio effective in meeting its specified objective

Balancing risk against performance
While managing a portfolio it is critical to know all the factors affecting its different variables, whether internal or external and to balance the portfolio from ups and downs.

Develop a balance portfolio by maintaining overall risk at acceptable level so that it satisfies overall objectives of portfolio management. For more details contact us at www.karvywealth.com

CD rates to rise further on liquidity squeeze

Short-term borrowing rates in India are expected to rise further in the next few weeks as companies pay advance taxes, exacerbating a severe cash shortage in the financial system.

Rates on 3-month certificates of deposit were at 9.70 per cent on May 28, higher than any of the first quarters in at least the previous three years, while borrowing rates for three-month commercial paper surged to 10.23 per cent. Bankers expect 3-month CDs to go as high as 10.25 per cent in June and the one-year CD as much as 10.30 per cent.

Unlike years past, cash conditions have not improved significantly in April and May, as government spending that usually kicks in at the start of a new financial year has failed to have the usual impact given the structural deficit in liquidity in India's inter-bank system, analysts said.

Traders are now bracing for worse liquidity conditions as companies are expected to pay as much as Rs 30,000 crore ($5.41 billion)in advance taxes starting in mid-June.

That's especially the case given the Reserve Bank of India has been intervening frequently in currency markets, though it has offset some of the impact on rupee liquidity by purchasing bonds via open market operations.

"Inter-bank liquidity is seen tightening more in June because of further forex interventions, keeping an upward pressure on short-term CD rates," said N.S. Venkatesh, treasurer at IDBI Bank.

The severe cash shortage in the banking system is clearly shown by banks' repo borrowings, which has averaged about 1 trillion rupees a day in the current quarter, well above the Rs 65,000 crore levels the central bank considers normal.

The RBI's bond purchases via OMOs as well as in secondary markets has also not been big enough to offset this liquidity deficit. The RBI has bought Rs 32,087 crore via OMOs over the previous three weeks, and traders are waiting to see whether it will announce a fourth consecutive action this week.

Apart from fresh borrowing, banks are already refinancing existing CDs that mature towards the end of the quarter. Dealers estimate that up to Rs 1,40,000 crore of CDs will be rolled over by the end of June, mostly at the short-end, all of which is expected to further worsen liquidity.

"Redemption and rollover pressure of CDs up to June, especially in three-month segment, will add to the pressure on short term rates," IDBIs Venkatesh said.

Rate hike certain? – Bankers.

State Bank of India chairman O P Bhatt states, "Conventional wisdom says that there should be at least a 25 basis points hike in interest rates,"

Inspite of severe moderation for 2 weeks, the food inflation was on a 15.52% high which ended the 1st week of January’2011. The rise in the price of necessary items like vegetables, onions, tomatoes etc. Milk, eggs and other food products also faced a considerable high.

RBI Governor D Subbarao also expressed his grief of the poor man facing troubles claiming, ‘Some of the vegetable prices are still high’.
With a doubt in their minds whether the interest rates can check the price rise the analysts are still tightening the interest rates with the Central Bank seeming to have no other option.

Analysts suggest that the RBI could be of great help and take simple steps to ease the liquidity of the system.

Sources reveal that, HDFC Ltd Chairman Deepak Parekh said the RBI is expected to raise key short-term rates by 25-50 basis points.

"The RBI may be looking at an increase (of short-term rates) of 25-50 basis points... But I personally feel that interest rates are already high and it will impact the growth of retail loans and housing," Parekh said.

To conclude we could say that the food inflation has shot up. The indecisive rise in the food inflation rate has prompted the RBI to now strengthen the money supply by raising both borrowing and short term pending rates.

In 2010, the RBI raised the repo and reverse repo rates six times to 6.25 per cent and 5.25 per cent, respectively, to normalise the monetary policy, which was loosened to combat a slowdown in economic growth in the wake of the global financial meltdown in late 2008.

Source : Rediff.com/business.

Word of the Day: Treasury bill (T-Bill)

Treasury Bill is basically a short-term debt instrument of the Government of India.
This security bears no DEFAULT RISK and has a high degree of LIQUIDITY and low INTEREST RATE RISK in view of its short term. The instrument is negotiable and is issued at a discount from the FACE VALUE.
At MATURITY, the investor receives the face value and hence the increment constitutes the interest earned.

Two types of T-Bills were issued in India, by the Reserve Bank of India (RBI), on behalf of the government:

Ad-hoc T-Bills (or Ad-hocs) of 91 days maturity (which were non-marketable) to the RBI to replenish the Central Government's cash balance.
Ordinary T-Bills "on tap" that are taken up mainly by banks, for short-term investment or to comply with statutory requirements.