A

Synopsis
ON
“RISK AND RETURN ANALYSIS”
AT
“IIFL LIMITED”
Submitted in partial fulfillment of the requirement for the award of
the degree of
"MASTER OF BUSINESS ADMINISTRATION",
BY
E. SNEHA KIRAN
Roll No: 1251-21-672-008

Under the guidance of

----------------------------

Wesley Post Graduate College

(Affiliated to Osmania University)
SECUNDERABAD, Hyderabad.
2021-2023
 INTRODUCTION

A risk–return analysis seeks “efficient portfolios”, i.e., those which provide maximum return
on average for a given level of portfolio risk. It examines investment opportunities in terms
familiar to the financial practitioner: the risk and return of the investment portfolio.

In investing, risk and return are highly correlated. Increased potential returns on investment
usually go hand-in-hand with increased risk. Different types of risks include project-specific
risk, industry-specific risk, competitive risk, international risk, and market risk. Return refers
to either gains or losses made from trading a security.

The return on an investment is expressed as a percentage and considered a random variable

that takes any value within a given range. Several factors influence the type of returns that
investors can expect from trading in the markets.

Diversification allows investors to reduce the overall risk associated with their portfolio but
may limit potential returns. Making investments in only one market sector may, if that sector
significantly outperforms the overall market, generate superior returns, but should the sector
decline then you may experience lower returns than could have been achieved with a broadly
diversified portfolio.

MEANING:
Risk-Return Analysis opens the door to a groundbreaking four-book series giving readers a
privileged look at the personal reflections and current strategies of a luminary in finance. This
first volume is Markowitz's response to what he calls the "Great Confusion" that spread when
investors lost faith in the diversification benefits of MPT during the financial crisis of 2008. It
demonstrates why MPT never became ineffective during the crisis, and how you can continue
to reap the rewards of managed diversification into the future. Economists and financial
advisors will benefit from the potent balance of theory and hard data on mean-variance
analysis aimed at improving decision-making skills. 
Relationship between risk and return
Investors are risk averse; i.e., given the same expected return, they will choose the investment
for which that return is more certain. Therefore, investors demand a higher expected return
for riskier assets. Note that a higher expected return does not guarantee a higher realized
return. Because by definition returns on risky assets are uncertain, an investment may not
earn its expected return.
Although the charts in Figure 1 show historical (realized) returns rather than expected
(future) returns, they are useful to demonstrate the relationship between risk and return. Note
that the mean (average) annual return increases as the dispersion of returns increases.

A portfolio is a collection of assets. The assets may be physical or financial like

Shares, Bonds, Debentures, Preference Shares, etc. The individual investor or a fund manager
would not like to put all his money in the shares of one company that would amount to great
risk. He would therefore, follow the age old maxim that one should not put all the eggs into
one basket. By doing so, he can achieve objective to maximize portfolio return and at the
same time minimizing the portfolio risk by diversification.

 Portfolio management is the management of various financial assets which comprise

the portfolio.
 Portfolio management is a decision – support system that is designed with a view to
meet the multi-faced needs of investors.
 According to Securities and Exchange Board of India Portfolio Manager is defined as:
“Portfolio means the total holdings of securities belonging to any person”.
FUNCTIONS OF RISK-RETURN:
 To frame the investment strategy and select an investment mix to achieve the desired
investment objectives
 To provide a balanced portfolio which not only can hedge against the inflation but can
also optimize returns with the associated degree of risk
 To make timely buying and selling of securities
 To maximize the after-tax return by investing in various taxes saving investment
instruments.
STRUCTURE / PROCESS OF TYPICAL PORTFOLIO MANAGEMENT

In the small firm, the portfolio manager performs the job of security analyst.

In the case of medium and large sized organizations, job function of portfolio manager and
security analyst are separate.

CHARACTERISTICS OF PORTFOLIO (Risk-Return):

RESEARCH OPERATIONS
PORTFOLIO
(e.g. Security (E.g. buying and
MANAGERS
Analysis) Selling of Securities)

CLIENTS

Individuals will benefit immensely by taking portfolio management services for the
following reasons:

 Whatever may be the status of the capital market, over the long period capital markets
have given an excellent return when compared to other forms of investment. The
return from bank deposits, units, etc., is much less than from the stock market.
 The Indian Stock Markets are very complicated. Though there are thousands of
companies that are listed only a few hundred which have the necessary liquidity. Even
among these, only some have the growth prospects which are conducive for
investment. It is impossible for any individual wishing to invest and sit down and
analyze all these intricacies of the market unless he does nothing else.
 Even if an investor is able to understand the intricacies of the market and separate
chaff from the grain the trading practices in India are so complicated that it is really a
difficult task for an investor to trade in all the major exchanges of India, look after his
deliveries and payments


NEED & IMPORTANCE OF STUDY:

A risk-Return analysis has emerged as a separate academic discipline in India.

Portfolio theory that deals with the rational investment decision-making process has now
become an integral part of financial literature.

Investing in securities such as shares, debentures & bonds is profitable well as

exciting. It is indeed rewarding but involves a great deal of risk & need artistic skill.
Investing in financial securities is now considered to be one of the most risky avenues of
investment. It is rare to find investors investing their entire savings in a single security.
Instead, they tend to invest in a group of securities. Such group of securities is called as
PORTFOLIO. Creation of portfolio helps to reduce risk without sacrificing returns. Portfolio
management deals with the analysis of individual securities as well as with the theory &
practice of optimally combining securities into portfolios.

The modern theory is of the view that by diversification, risk can be reduced. The
investor can make diversification either by having a large number of shares of companies in
different regions, in different industries or those producing different types of product lines.
Modern theory believes in the perspective of combinations of securities under constraints of
risk and return.
SCOPE OF STUDY:
This study covers the Markowitz model. The study covers the calculation of
correlations between the different securities in order to find out at what percentage funds
should be invested among the companies in the portfolio. Also the study includes the
calculation of individual Standard Deviation of securities and ends at the calculation of
weights of individual securities involved in the portfolio. These percentages help in
allocating the funds available for investment based on risky portfolios.

 To understand, analyze and select the best portfolio

STEPS IN PORTFOLIO MANAGEMENT:

 Specification and qualification of investor objectives, constraints, and preferences in

the form of an investment policy statement.
 Determination and qualification of capital market expectations for the economy,
market sectors, industries and individual securities.
 Allocation of assets and determination of appropriate portfolio strategies for each
asset class and selection of individual securities.
 Performance measurement and evaluation to ensure attainment of investor objectives.
 Monitoring portfolio factors and responding to changes in investor objectives,
constrains and / or capital market expectations.
 Rebalancing the portfolio when necessary by repeating the asset allocation, portfolio
strategy and security selection.
STATEMENT OF THE PROBLEM

Measuring return enables financial specialists to survey how well they have done, and it has
an influence in the estimation of future returns. Security examination is worked around the
possibility that financial specialists are worried with two essential properties intrinsic in
securities: the arrival that can be normal from holding a security and the risk on that arrival
that is accomplished will be not as much as the risk that was normal. The basic role of this
paper is to center upon return and exposure and how they are measured. Speculators need to
expand anticipated that profits subjected would their flexibility for risk. Return is the
persuade power and the rule compensate in the speculation procedure and it is the key
technique accessible to speculators in looking at option venture.

OBJECTIVES OF THE STUDY:

 To study the investment pattern and its related risks & returns In The IIFL LIMITED.
 To find out optimal portfolio of The IIFL LIMITED, which gave optimal return at a
minimize risk to the investor in IIFL LIMITED.
 To see whether the portfolio risk is less than individual risk on whose basis the
portfolios are constituted
 To see whether the selected portfolios is yielding a satisfactory and constant return to
the investor

METHODOLOGY AND FRAMEWORK
Data Collection:

In this study, we obtain the data from interviewing the respondent on the issues of interest,
various websites, journals, newspapers, books, etc and documented information from annual
report had been used to explores various alternatives regarding equity investment

Primary Data:

Primary data is the one which is collected specifically for the purpose of the project, and can
be obtained from various people working in the organization. For this study the primary data
was collected from following sources.

 Discussion with manager.

Secondary Data:

It refers to the statistical material which is not originated by the investigator himself but
obtained from someone else's records, or when Primary data is utilized for any other purpose
at some subsequent enquiry it is termed as Secondary data. However, it plays a significant
role in the project. For this study the secondary data was collected from the following
sources.

 Books related to risk and returns management

 Websites related to risk and returns management
 documented information from annual report of this company

Statistical Tools Used:

Project has been done using selective technical tools .This research study has been based on
descriptive and explanative and exploratory method. It describes securities market in India,
and explains risk and returns involved in equity investment. Finally it explores various
alternatives regarding equity investment.
LIMITATIONS OF THE STUDY

1. Construction of Portfolio is restricted to two companies based on Markowitz model.

2. Very few and randomly selected scripts / companies are analyzed from BSE listings.

3. Data collection was strictly confined to secondary source. No primary data is associated

with the project.

4. Detailed study of the topic was not possible due to limited size of the project.

5. There was a constraint with regard to time allocation for the research study i.e. for a

period of two months.