Organisation Study @ Il&fs Invest Smart

Chapter 1 PROFILE OF THE FINANCIAL SERVICES INDUSTRY AND IL&FS INVESTSMART LTD.

INTRODUCTION Financial services are vital tools of machinery for economy and they lubricate the wheels of economic development. Indian economy has undergone a sea change in its structure; policy and regulation, due to liberalization and globalization, since 1991. The financial service sector is considered as the sunrise sector due to increasing growth and contribution towards the GDP of India. Once the economy crosses the subsistence level, financial services become more prominent and important to that economy. Financial services in current days are emerging as a crucial industry world over and are termed as a sun rise industry. The services offered by this sector not only raise the required funds, but also lead to the efficient management of funds. Today, the financial service products, as turned out to by financial services industry are innovative and paving ways for vivid opportunities for further economic development. With market sentiment turning positive due to the formation of a stable newly elected government, the ripple effect is likely to felt across all the financial services in India. The sectors, including banking and insurance, and mutual funds are all beginning to reap the benefits of a good closure for 2008-09. In 2008-09, the Indian economy is estimated to have grown by 6.7 per cent. According to the latest Central Statistical Organization (CSO) data, financial services and real estate sector rose by 9.5 per cent in the first quarter of 2009-10. Investing means putting your money to work for you. Essentially, it's a different way to think about how to make money. There are many different ways you can go about making an investment. This includes putting money into stocks, bonds, mutual funds, or real estate

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(among many other things), or starting your own business. Sometimes people refer to these options as "investment vehicles," which is just another way of saying "a way to invest."

PROFILE OF THE FINANCIAL SERVICES INDUSTRY Financial services like banking, merchant banking, factoring, Insurance, Venture capital, act as vital machinery of an economy. These financial services that facilitate financial transactions of individuals and institutional services resulting in their resources allocation activities through time. The sector that deals with such financial services is known as “financial services sector”. The Three pillars of Financial System are: 1. Banking 2. Insurance and Mutual Funds

3. Online Trading Financial system acts as an intermediary

World Scenario The first publicly issued security can be traced back to the fourteenth century in Venice where the government made the first known issue of bonds. Merchants and landowners as investments purchased these government securities. The need for stock exchanges developed out of early trading activities in agricultural and other commodities. In and around 1750s in England, traders in the shares of early companies would commonly meet in Jonathans Coffee House to trade shares and make business deals. Early share bids and offers were written on the Coffee House walls and the trading process was highly unregulated, with insider trading forming the basis for most investment decisions. By 1773, Trading Clubs had formed, and in 1801 a group of traders raised 20,000 pounds to build the London Stock Exchange in Capel Court. A similar process was occurring in America. By the early 1790s many merchants had begun trading shares. Just as in London, these early traders often met at coffeehouses in an informal environment. ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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In 1792, 24 Merchants and Brokers paid $400 each for a "trading seat" and signed the Buttonwood Tree Agreement, who decided to act as agents for other persons and give preference to each other in their negotiations. They did much of their trading under a tree at what is now 68 Wall Street. This agreement outlined the regulations under which shares Could be bought and sold. These regulations formed the basis for trading rules that still exist today and led to the formation in 1817 of the New York Stock Exchange (NYSE). Today, nearly three thousand companies from all over the world trade their stocks valued at trillions of dollars here. At that time, many stocks that were deemed not well enough for the New York Stock Exchange (NYSE) were traded outside on the curbs. This, so called ‘curb trading’ has now become the American Stock Exchange (AMEX). Today much water has passed under the bridge since then and we forward all the way to late 1990s. By late 1990s, most of the stock exchanges had been automated, and the “open outcry” method of trading was the thing of the past. Most stock exchanges began to use computers to replace floor traders. Floor traders take phone and computer orders from brokers, and negotiate a trade with stock specialists at trading stations on the trading floor. The internet orders placed by clients are first processed and authorized through the stock brokers’ computer system before being automatically placed on the stock exchanges’ computer systems. This period saw the rise in popularity and acceptance of online stock broking. Various segments in financial services industry are as under: •

Insurance

•

Mutual funds

•

Stock broking

Insurance The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries. A brief history of the Insurance sector The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are: 

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

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1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.

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1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

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1956: sec 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.

Milestones in the insurance sector Some of the important milestones in the general insurance business in India are: 

1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.

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1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.

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1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up

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1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies’ viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

Key players in insurance Sector of India 

Reliance General Insurance Company Ltd.

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Life Insurance Corporation of India

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HDFC Standard Life Insurance

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Kotak Mahindra

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ICICI Prudential

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SBI Life Insurance Company Ltd.

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Oriental Insurance Company Ltd.

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National Insurance Company Ltd.

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Bajaj Allianz Life Insurance Company Ltd.

Mutual Funds Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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investors or rather to those who believed in savings, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Though the 1988 year saw some new mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization. The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher

performance

by

April

2004.

It

rose

as

high

as

Rs.1,

540bn.

the net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There was rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 10 to 20 percent of their net asset value. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes. ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and don’ts of mutual funds. Key players in Mutual Funds in India •

ABN AMRO Mutual Fund.

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Birla Sun Life Mutual Fund.

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Bank of Baroda Mutual Fund (BOB Mutual Fund). .

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ING Vysya Mutual Fund.

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Prudential ICICI Mutual Fund.

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Sahara Mutual Fund.

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State Bank of India Mutual Fund.

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Tata Mutual Fund.

Indian Brokerage Industry The Indian broking industry is one of the oldest trading industries that have been around even before the establishment of the BSE in 1875. Despite passing through a number of changes in the post liberalization period, the industry has found its way towards sustainable growth. The securities market has essentially three categories of participants, viz., the issuer of securities, the investors in the securities and the intermediaries. The issuers are the borrowers or deficit savers, who issue securities to raise funds. The investors, who are surplus savers, deploy their savings by subscribing to these securities. The intermediaries are the agents who match the needs of users and suppliers of funds for a commission. These intermediaries function to help both the issuers and investors to achieve their respective ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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goals. There are large variety and number of intermediaries providing various services in the Indian securities market. Need for a broker As per SEBI (Securities and Exchange Board of India.) regulations, only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognised Stock Exchange or through a SEBI- registered sub-broker. The financials and investment industry is a highly competitive in nature with almost well established firms diversifying and entering into this industry. As of today there are Over 2000 brokers, 10000 sub brokers and 1 core investors. It is highly Competitive with entry of new aggressive players. Retail broking is highly fragmented industry with falling brokerages value added services and online trading, the new fad.

Main players in the brokerage industry are •

India Infoline

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ICICI Direct

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Angel Broking

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Can Money

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Geojit

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HDFC Securities

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•

Kotak Securities

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Relaince Money

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Religare

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Share Khan

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Artha Money

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Way to Wealth

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SBI Demat

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Bridge securities Ltd.

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Mothilal Oswal

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Anand Rati

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Citi Bank Demat

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Dautche Bank

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Frankfin

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Karvy securities

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Appolo sindhuri

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Bangalore stock excgange

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PROFILE OF THE IL&FS INVESTSMART LTD. Infrastructure Leasing & Financial Services Limited (IL&FS) is one of India's leading infrastructure development and finance companies IL&FS has a distinct mandate catalyzing the development of infrastructure in the country. The organization has focused on the commercialization and development of infrastructure projects and creation of value added financial services. From concept to execution, IL&FS houses the expertise to provide the complete array of services necessary for successful project completion: visioning, documentation, finance, development, management, technology and execution. This company was started in 1980 with a major objective of financing major infrastructure and leasing services. Over the years, IL&FS has broad-based its shareholding, which today includes Life Insurance Corporation of India, ORIX Corporation – Japan, Housing Development Corporation of India, Abu Dhabi Investment Authority, State Bank of India, and Central Bank of India.

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Registered Office of IL&FS, Mumbai.

IL&FS Investsmart Securities Ltd (IISL) is one of India’s leading financial services organizations. IISL, through its subsidiaries in India and Singapore, (Shown in Figure 1.1) provides a wide range of investment products to its retail and institutional banking, insurance broking & distribution, mutual funds distribution and related financing services. IISL’s 2,000 employees provide a complete range of investment solutions to over 138,000 customers in India through its 88 branches and 19 franchised outlets from 133 cities and has been recognized as “National Best Performing Financial Advisor – Retail” for two years in a row (06-07 & 07-08) BY CNBC TV 18.

Figure 1.1 - Subsidiaries of IL&FS Ltd.

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IL&FS Investsmart Securities Limited IL&FS Investsmart Securities Limited (IISL) is one of India’s leading financial services organizations providing individuals and corporate with customized financial management solutions. At IISL, they believe in "Realizing customer goals together". One will find in them - a trusted investment partner to help customer work towards achieving investor’s financial goals. IL&FS institutional expertise, combined with a thorough understanding of the financial markets results in appropriate investment solutions for investors. The strong team of Relationship Managers, Customer Service Executives, Advisory Managers and Research Analysts, offers efficient execution backed by in-depth research, knowledge and expertise to customers across the country. With a pan-India presence of over 300 offices, IIL is geared to meet all the investment needs through its branches. IL&FS Investsmarts Limited is an initiative in the field of Financial Services started by Infrastructure Leasing & Financial Services (IL&FS), an institution known for its innovative and pioneering initiatives in the areas of Infrastructure, Corporate Finance and Investment Banking. IISL was set up in October 1997 and began retail operations in September1998. IL&FS Investsmart Securities Limited (IISL) was set up with the objective of becoming one of the leading full service brokerage houses in the country with a strong expertise in webbased technology as well as strengths in physical distribution. Today with a presence in more than 90 cities across India through more than 300 outlets, IISL has become one of the most prominent players in the Financial Services Industry with service offerings across different categories. In the year 2008 investsmarts securities received the Best Performing National Financial Advisor – Retail Segment at the CNBC TV 18 National Financial Advisor Award.

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The Retail Business Division at IISL is involved in dealing with a range of financial products offered to customers across India through multiple locations. The retail business is further categorized into various business divisions catering to varied needs of our customers. These include divisions catering to customers for Investment options such as Equity Trading, Derivatives Trading, IPO Investments, Fixed Income products, Mutual Fund Investments as well as Insurance and Home Loans Advisory services. IL&FS Investsmart Securities leverages on its pedigree of IL&FS, which has core competency of institutional and retail financial services and products. IL&FS is a financial institution known for its innovative and pioneering initiatives in the areas of infrastructure, corporate finance and Investment Banking. Global majors E*TRADE FINANCIAL through its wholly owned subsidiary E*TRADE Mauritius Limited and Softbank Asia Infrastructure fund L.P. (SAIF) have equity participation in IL&FS Investsmart. SAIF is a leading Asian private equity firm headquartered in Hong Kong. US based E*TRADE FINANCIAL corporation is a leading financial services organization providing financial services including brokerage, banking and lending for retail, corporate and institutional customers. It operates branded web sites in 12 countries. In particular, IL&FS have always felt the need for a successful brokerage Group to have an international capability. IL&FS believe that the strength of the HSBC Group provides a unique opportunity for Investsmart to execute its strategic vision. It is IL&FS intention to retain a close association with Investsmart through co-operation on a number of areas that will be mutually beneficial and on an arm's length basis” Mr.Ravi Parthasarathy added, “I believe that HSBC Group will provide Investsmart employees significant opportunities to enhance the value proposition for their customers. Investsmart employees will also benefit from the training and development infrastructure that arises from being a part of one of the world’s leading banking organizations.” ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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Vision Statement To become the preferred long term financial partner to a wide base of customers whilst optimizing stakeholders value! Mission Statement To establish a base of 1 million satisfied customers by 2010. We will create this by being a responsible and trustworthy partner! Corporate Action An approach to business that reflects responsibility, transparency and ethical behaviour. Respect for employees, clients & stakeholder groups. ILL’s strong team of Relationship Managers, Customer Service Executives, Advisory Managers and Research Analysts, offers efficient execution backed by in-depth research, knowledge and expertise to customers across the country. With a pan-India presence of over 300 offices, IIL is geared to meet all the customers’ investment needs through an office nearby. All the interested investors need to do is drop in at the nearest branch or call and ILL will be happy to do the rest! ILL says about its Customer At IIL, we believe in "Realizing your goals together". Customer will find in IL&FS a trusted investment partner to help work towards achieving financial goals of clients. IL&FS institutional expertise, combined with a thorough understanding of the financial markets results in appropriate investment solutions for clients. Advantages Of IL&FS ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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Today, IL&FS Investsmart Limited is one of India’s leading financial services organization delivering value and innovation to over 100,000 customers through more than 300 offices across the India.

7 Reasons for investing with IL&FS Investsmart Limited is smarter. • Customization: They formulate investment plans based on investors’

individual requirements. • Expertise: They bring within customer reach, IL&FS institutional expertise

and their valuable understanding of the financial markets. • One-stop-shop: They cater to all investors’ investment needs under one roof. • Trust: They enjoy the pedigree of IL&FS and share its expertise in financial

services. • Personalised Service: They help customer through the entire investment

process, step by step, with innovative and efficient services. • Unbiased & Objective Advise: They partner you in your investment

process, with our team of expert investment advisors. • Extensive Reach: Through a host of mediums:

- offline through more than 300 offices across India. - Online through our website. • Retail Business: Retail offerings of IIL seek to cover all financial planning

requirements of individuals, which include providing personalised investment management services including planning, advisory and execution and monitoring of the full range of investment services. Broadly the retail services are divided into two broad categories. HSBC in India The HSBC Group in India is represented by several entities including The Hong Kong and Shanghai Banking Corporation Limited which offers a full range of banking and financial ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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services to its over 2 million customers in India through its 47 branches and 170 ATMs across 26 cities. HSBC is one of India’s leading financial services groups, with over 33,000 employees in its banking, investment banking and capital markets, asset management, insurance broking, two global IT development centres and six global resourcing operations in the country. The Bank is the founding and a principal member of the HSBC Group which, with over 10,000 offices in 83 countries and territories and assets of US$2,354 billion at 31 December 2007, is one of the world’s largest banking and financial services organisations.

Sale of Stake in Investsmart to HSBC IL&FS agrees to sell its stake in Investsmart to HSBC. Infrastructure Leasing and Financial Services Limited (IL&FS), is to sell its 29.36 percent stake in IL&FS Investsmart Limited (Investsmart), a leading retail brokerage house in India, to HSBC. Under the terms of the agreements, HSBC, through Group subsidiaries, proposes to acquire IL&FS’s 29.36 per cent stake of Investsmart for a consideration of INR 410 crores (approximately US$ 96.9 million). In addition, IL&FS will be paid INR 82 crores (approximately US$ 19.4 million) as part of a three–year non-compete agreement. HSBC also proposes to acquire an additional 43.85 per cent stake in Investsmart from E*TRADE Mauritius Limited, an indirectly wholly-owned subsidiary of E*TRADE Financial Corporation. Both IL&FS and E*TRADE Mauritius Limited will receive a price of INR200 per share for their respective stakes. HSBC will also make an open offer to acquire up to 20 per cent of the remaining shares in Investsmart. Details of the open offer to Investsmart shareholders will be published in the Indian press and distributed to shareholders in accordance with local regulations. Established in 1997 by IL&FS, Investsmart is a financial services firm with a strong presence in retail broking. It has a national distribution network comprising 88 branches, 190 franchise outlets and more than 660 terminals in 133 cities throughout India. Its 2,000 staff serves over 138,000 clients. While strong in retail broking, it also has businesses in Institutional broking, investment banking, wealth management, insurance distribution and margin financing. Ravi Parthasarathy, Chairman of IL&FS, said “IL&FS’s goal is to position IIL as a leader in the brokerage sector.

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In particular, IL&FS have always felt the need for a successful brokerage Group to have an international capability. And believe that the strength of the HSBC Group provides a unique opportunity for Investsmart to execute its strategic vision. It is IL&FS intention to retain a close association with Investsmart through co-operation on a number of areas that will be mutually beneficial and on an arm's length basis” Mr. Parthasarathy added, “I believe that HSBC Group will provide Investsmart employees significant opportunities to enhance the value proposition for their customers. Investsmart employees will also benefit from the training and development infrastructure that arises from being a part of one of the world’s leading banking organizations.” HSBC will be making the acquisition through Group subsidiaries, including HSBC Securities and Capital Markets (India) Private Limited, the Group’s broking arm in India. The agreement and open offer are subject to regulatory and other approvals. With a market capitalization of approximately US$300 million, Investsmart is listed on the National Stock Exchange and the Bombay Stock Exchange and its Global Depository Shares are listed on the Luxembourg Stock Exchange ends/more.

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Figure1.2- IISL Share Holding Pattern as on February 2009 Source:

www.investsmartindia.com

PRODUCT PROFILE All the products of ILFS can be broadly divided into the following two categories: 1. Online Trading Products 2. Advisory Services 3. Other services.

1. Online Trading Product of IL&FS Investsmart Basically IL&FS Investsmart offers three types of products to its retail customers. They are: a. SmartStart b. SmartInvest c. SmartTrade

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a. SmartSTART: SmartStart is a powerful browser based trading system for those who are relatively new to online investing. A unique integrated account, which integrates customer banking, broking, and demat accounts of the clients. A comprehensive trading service, which allows customer to invest in equities and derivatives. SmartStart trading platform allows customer the flexibility of trading on any internet capable system, with access to both the NSE and BSE System Requirement •

Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled)

•

Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of 28.8/33.6 Kbps)

•

System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128 MB or better

•

Operating System: Windows 98/2000 or Windows XP.

Features of SmartStart •

Freedom of information.

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Control of investor’s money.

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Access to market.

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Ensure the best price for investors.

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•

Offers greater transparency.

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Live financial news and analysis.

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Access to NSE and BSE

b. SmartINVEST SmartInvest is a browser-based system designed for customers who transact occasionally. It is ideal for investors who believe in the Buy and Hold Approach towards investment in equities. SmartInvest's capability as a browser-based trading platform gives customer the benefit of real-time streaming data with the flexibility of trading on any Internet capable system. With access to both the NSE and BSE, customers are in the driver's seat when routing their order to the best price on either of the exchanges. SmartInvest sophisticated yet easy to use point and click order entry interface allows customer to react more quickly to the markets and make better decisions. System Requirement •

Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled)

•

Internet Connection:

Broadband/Dial-Up connection (Modem at a

minimum of 28.8/33.6 Kbps) •

System: Pentium 3 or 4 Ghz or best available at market RAM (Physical) 128 MB or better

•

Operating System: Windows 98/2000 or Windows XP

Features of SmartInvest 

Instant Loading: The browser- based applet system allows customer to instant access to client’s account with no wait time, unlike other system that takes a few minutes to load.

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 Works behind a proxy: This platform can be accessed on any internet-enabled

network. They can be accessed even from costumer work place.  Live streaming quotes: Keeps an eye on the stocks of customer’s choice with

streaming real time quotes and customizable market data. Color-coded price changes help them to spot trends and in turn help the customer to react faster.  Multiple watch lists: The new watch list option allows the customer to create up to

10 groups of watch list with each group accommodating 15 scripts. Each watch list can be personalized by the customers according to their choice of scripts.  NSE and BSE Access: Flexibility of trading on both NSE and BSE via a single

screen.  Single order form for Cash and F & O: Single order form offers the customers the

convenience of transacting in various segments of the market without having to switch between multiple windows.  Point and click order entry: Makes order entry quick and simple with a click on the

security, the same is inserted on the order form in the trade screen.  Hot key functions: Using a single keystroke (hotkey) function the customer can

achieve important task very similar to a broker’s terminal. Accessing important reports is also one keystroke away.  Market depth window: It gives an immediate “at a glance” information about the

stock they are following. The view provides the best 5 bids and offers quotes and the outstanding order quantities.  Back office access: View segment wise ledger bills and contract notes, trades,

positions, account balance, realized/unrealized profit and loss, and buying power all in real time.

c. SmartTRADE:

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SmartTrade is an EXE based desktop software designed for active traders who transact frequently to capture favourable short-term price movements. The platform offers active traders the tools they need to make critical decisions with confidence. SmartTrade is designed and built from the ground up to address the needs of active traders. SmartTrade makes the most of state-of the-art technology to deliver power, speed and reliability. Through an easy-to-use interface, users are provided with the same tools and advantages that the professionals enjoy. System Requirement •

Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled)

•

Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of 28.8/33.6 Kbps)

•

System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128 MB or better

•

Operating System: Windows 98/2000 or Windows XP.

This account is an EXE based desktop software designed for active traders who transact frequently to capture favourable short-term price movements. The platform offers active traders the tools they need to make critical decisions with confidence. Smart Trade is designed and built from the ground up to address the needs of active traders. Smart Trade makes the most of state of the art technology to deliver power, speed and reliability. Through an easy to use interface, users are provided with the same tools and advantages that the professionals enjoy.

Features of SmartTrade

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 Fully customizable display: The save desktop option allows the clients to save their

created trade screen layout, so the next time they access the application the created layout is not lost.  Dynamic charts with Indicators: Provides the clients a wealth of charting

capabilities and timing indicators, which allow them to go right into the action with real time daily charts, and intra-day charts. Watch price movements by minutes, days or weeks.  EOD Charts: Smart Trade puts up to 5 years of in depth history at their command

with the power to instantly back-test any trading strategy they design, before risking one rupee of their trading capital.  Real- Time market data: Get real time market data from both NSE and BSE,

similar to what a professional broker gets.  Advanced alert capabilities: Alert window allows the customer to be free from

watching every tick. Users can be notified once a security has reached the set parameters. Multiple securities can be monitored using the set parameters. These alerts can be triggered both visually and audibly.  Live order status: Tracking all their orders are made easy through the order status

screen. Further drill down into all details pertaining to an order is available in the order detail sub report.  Track your orders real time: Track customer stock orders and trades in real time.  Real time position updates: All their positions are updated automatically and

instantly. The need of refresh button is avoided.  Dynamic buying power: It reflects their credits and debits instantly on every trade

execution. No need to refresh each statement to know their latest buying limits.  Derivative chain: This feature provides with a list of all derivative contracts

available for the selected security. To view derivative prices of a security just right click on the symbol and click on derivative chain. ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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 Lock terminal option: If the system is unattended, this function locks the trading

platform for the customers and can be accessed again only on providing the proper login details.  Message window docking: This feature enables the customers to receive trading

messages, intraday trading calls and messages from both the exchanges flashed real time onto their screens.

2. Advisory Services Basically IL&FS Investsmart offers following types of services to its retail customers. They are: a. Mutual fund advisory services. b. Portfolio management services. c. IPO Advisory and Distribution Services. d. Insurance Advisory Services.

e. Investment Advisory services.

a. Mutual Fund Advisory Services As a part of Mutual Fund Advisory Services, their team of experts across India helps investors in selecting the right scheme from over 500 offerings, matching customer needs, goals and risks. In addition to this, we also help you constantly monitor their MF portfolio, making changes according to the changing needs as per the market scenario, in order to make customers money work for investors. At IL&FS Investsmart (IIL), their expert teams of relationship managers interact with investors on a regular basis to discern customer changing needs, in tune with the changing environment. Most of investors require some assistance in making selections appropriate to their individual needs. Investors need sound advice from people who have expertise to decipher the financial jargon of investment options available today. Their Investment ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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Advisory Team helps customer customize and execute plans, based on their individual needs towards wealth maximization. b. Portfolio Management Services (PMS) Financial markets today offer enormous growth potential. But managing investors own investments can be an extremely challenging task. Anticipating market trends, assessing the impact of socio-economic changes on customer investments, keeping abreast of latest corporate developments and financial analysis all adds up. Managing one’s investments has become nearly a full-time affair that requires considerable time and expertise. At IL&FS Investsmart, they offer customer just the solution that allows clients to relax as IL&FS put their money to work through the IIL-PMS, a Discretionary Portfolio Management Service. c. IPO Advisory and Distribution Services IL&FS Investsmart (IIL) is one of India's leading companies engaged in the activity IPO Advisory and Distribution. IL&FS primary markets division does a comprehensive research before recommending issues to clients. IL&FS pan India reach helps us in mobilising large number of applications across India during public offerings, this has ensured that constantly figure amongst the top ranking performers in the primary market distribution space. As a part of their online offering, customers can invest in IPO's not only through IL&FS branches but also through our website, which also provides customer with regular updates on the IPO scenario, Open IPO's as well as all the forthcoming IPO's at any given point of time. The primary markets distribution division works in conjunction with the retail and wholesale distribution networks, as well as IL&FS private client group. In case there are not IL&FS customers, but still want to invest in any particular IPO, IL&FS suggest client to visit any of branch locations near clients or else call us for an application form and IL&FS would courier it to customer. d. Insurance Advisory Services ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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IL&FS Investsmart (IIL) is customer one stop shop for all Insurance & Retirement needs. They have also been recognized as India’s Best Retail Financial Advisors at the CNBC TV18 Financial Advisory Awards 2006-07, 2007-08.

Their key service features include the following: •

Risk management solutions for all

•

Comprehensive research for all policies available on a regular basis

•

Recommendations on a comprehensive insurance cover based on clients needs

•

Maintain proper records of client policies

e. Investment Advisory Services The investment advisory team in the company helps customize plans, base on customer individual needs.

3. Other services Basically IL&FS Investsmart offers following types of other services to its retail customers. They are: a. Online services. b. Research and Financial Analysis.

c. Value added services.

a. Online Services The website offers unique features such as real time news and analysis, a personal portfolio manager, research tools, corporate profiles, mutual fund and product options, IPO centres, stock alerts, investment advisory services, query solving and much more.

b. Research and Financial Analysis ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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The research team in the company thoroughly studies each asset class-equity, mutual funds, commodities and fixed income products. The qualified financial analysts in the company study the market trends and make objective recommendations, so that customers can make well-informed decisions.

c. Value Added Service  Smart update – Extensively researched monthly reports detailing the market

performance of various investment options.  Mutual fund Weekly updates – Analysis of the Mutual Fund industry, offering an

overview of Mutual Fund Schemes.  Flavour of Equity – Monthly reports on the change in exposure in the top 10 stocks,

churning of portfolios and the entry and exit of stocks by the respective fund managers of select Mutual Fund companies.  Bond Fund Snapshot – Monthly reports on analysis of bond funds of select mutual

fund companies.  Rolling returns – Monthly reports on the fundamental and technical call for equities

and derivatives for short term.  Market wrap – Daily post market analysis.  Smart trader – Daily reports on the fundamental and technical call for equities and

derivatives for short term.  Equity Research reports – Sector and company wise reports on the fundamentals,

along with a recommendation of the stock.

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 Strategy note – Quarterly note on the broad equity market views, macro fundamentals

and top stock picks.  Result preview – Pre result quarterly reports on select companies.  Result update – Post result quarterly reports on select companies.  Event notes – Implications and analysis of major corporate events like mergers and

takeovers.  Visit notes – Notes on the company’s outlook and discussion during a corporate visit.  Deri Watch – Weekly, sock specific technical and derivatives statistics reports.  Deri Strat – Daily derivatives market strategy.  IPO Updates – Analysis on the current IPO with support for and against it.  Policy Updates – Updates and analysis of important announcements and policies like

the budget and monetary.  Morning coffee – Daily update on the Indian and International financial markets.  Morning Track – Monthly research reports on the debt and money markets.  Commodity reports – Daily and weekly commodity reports.  Depository & Custodial services - Company also offers dematerialization services as

the company is Depository Participant of NSDL.

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Chapter 2 ORGANISATION STRUCTURE INTRODUCTION A key issue in accomplishing the goals identified in the planning process is structuring the work of the organisation. Organisations are group of people, with ideas and resources, working toward common goals. The purpose of the organizing function is to make the best use of the organizations resources to achieve organizational goals. Organisational structure is the formal decision making framework by which job tasks are divided, grouped, and coordinated. Formalisation is an important aspect of structure. It is the extent to which the unit of the organisation are explicitly defined and its policies, procedures, and goals are clearly stated. It is the official organizational structure conceived and built by top management. The formal organisation can be seen and represented in chart form .an organization chart displays the organisational structure and shows job titles , lines of authority and relationship between departments. Organizational structure allows the expressed allocation of responsibilities for different functions and processes to different entities. Ordinary description of such entities is as ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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branch, site, department, work group, and single group of people. Contracting of individuals in an organization structure normally is under timely limited work contract or work order or under timely unlimited employment contract or program order.

Types of Organisation Structure 1. Functional Structure 2. Divisional Structure 3. Matrix Structure

•

Functional structure: Under the functional type of organization, all identical activities

are grouped together under one functional department. Each functional department is managed by an executive who is a specialist in his own field. There may be a separate department based on important functions such as finance, marketing, personnel. •

Divisional structure: In a divisional organization, corporate divisions operate as

relatively autonomous businesses under the larger corporate umbrella. In a conglomerate organization, divisions maybe unrelated. Divisional structures are made up of self-contained strategic business units that each produces a single product. Functional departments accomplish division goals. A weakness however, is the tendency to duplicate activities among divisions. •

Matrix Structure: in a matrix organization, teams are formed and team members report

to two or more managers. Matrix structure utilizes functional and divisional chains of command simultaneously in the same part of the organization, commonly for one-of-a-kind project. It is used to develop a new product, to ensure the continuing success of a product to which several departments directly contribute, and to solve a difficult problem. By superimposing a project structure upon the functional structure, a matrix organization is formed that allows the organization to take advantage of new opportunities. This structure ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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assigns specialists from different functional departments to work on one or more projects being led by project manager

ORGANISATION STRUCTURE OF IL&FS INVESTSMART LIMITED IL&FS Investsmart has multi divisional line organisation structure (shown in Figure 2.1).

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Figure 2.1 - Organisation Structure of IL&FS Investsmart ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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As an organization grows and the type of products and services it offers expands, a functional structure may no longer be appropriate. Most companies chose to a divisional structure, generally based on product line. The Multidivisional (MD) structure is the most common for diversified companies or companies wishing to differentiate product lines, each product line will have its own divisional hierarchy complete with support functions. The corporate level managers concentrate on efficient allocation of resources among the different divisions. This adds another level in the hierarchy and makes the overall organization “taller”.

Advantages of Multi Divisional Structure •

Increased organizational effectiveness: Due to a clear division of labor between corporate and division level managers. Functional areas can concentrate on innovations particular to their own product line.

•

Increased control: Corporate managers can monitor the performance of divisional and make comparisons, no longer have to worry about the inability to monitor shirking and free-riding at the functional level, this is the division manager’s problem.

•

Profitable growth: Theoretically capital can be allocated efficiently to division where the investment has the greatest opportunity for higher ROI.

•

Creation of an internal labor market: As with GE, good divisional managers can be moved between divisions and eventually promoted to corporate management. The taller the organization, the clearer the corporate “ladder”.

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Disadvantages of Multi Divisional Structure •

Balancing authority: It is difficult to determine how much authority should be centralized and how much to decentralize to the divisional level.

This is

especially hard for related diversification where one of the goals is capturing economies of scope. •

Possibility for conflict and misinformation:

Since divisions compete for

resources, they may not cooperate, causing coordination problems.

Also,

divisional managers may not always present a true picture of the state of their division in a bid to attract more resources. •

Functions are duplicated: As was the case at GM, functions such as R &D are duplicated at the divisional level. The cost of such duplication must be compared to the befits.

•

Bureaucratic costs are greater: Since the hierarchy is taller, more managers who produce nothing but coordination and memos are necessary. Supporting this hierarchy drives up fixed costs.

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Top Management A committed and formidable management team anchors the company towards its goal and provides direction in diverse areas of business strategy, operating management, regulatory reporting, human resources development, product development etc. Equipped with excellent domain knowledge and extensive experience, they drive IIL’s vision. •

Mr. Manasije Mishra

MD & CEO

•

Mr. Avdhoot Deshpande

Head - Equity and Capital Markets

•

Mr. Vipul Shah

Head - NBFC

•

Mr. Dharmen shah

Vice President - Institutional Equity

•

Mr. B.S. Shashidhar

Head - IAIFL and General Insurance

•

Mr. Jaideep Anand

Senior Vice President - Institutional Sales & Dealing

•

Mr. C. Diwakar

Chief Information Officer (CIO)

•

Mr. Bhuvnesh Khanna

Head - Alternate Channels

•

Mr. K. Venkatesh

Head – Distribution

Following is the list of our Board Members as on March 31, 2008. •

Mr. Manasije Mishra

Managing Director & CEO

•

Mr. Hardeep Singh

Independent Director

•

Dr. Ajay Dua

Independent Director

•

Ms. Sonal Dave

HSCI Nominee, Non-Executive Director

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•

Mr. Conrado Engel

Violet Nominee, Non-Executive Director

•

Mr. Tarun Kataria

Violet Nominee, Non-Executive Director

•

Ms. Kashmira Mathew

Alternate Director to Mr. Conrado Engel

Chapter 3 FUNCTIONING OF DIFFERENT DEPARTMENTS IL&FS has a various functional departments like other service and manufacturing companies there are some basic and very important departments in this company also which functions with high degree of accuracy and efficiency. The main departments are 1. Finance & Operations

2. Marketing & Sales 3. Human Resource Management (HRM)

4.

Advisory Departments 5. Collection and Verification Department

FINANCE & OPERATIONS Finance & Operation department is one of the most important departments in the organization from which overall performance of the company can be measured and changed. In IL&FS Investsmart, this important department is headed by a dynamic Executive Director (shown in the Figure 3.1)

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Figure 3.1 - Structure of Finance and Operation Department

Finance: Financial Management is the area of business management devoted to a judicious use of capital and a careful selection of sources of capital in order to enable a business firm to move in the direction of reaching its goals. Some of the main functions of finance department in IL&FS Investsmart are: a)

Sourcing of finance: This has been done by issuing shares to the institutional as

well as retail investors. Recently HSBC has acquired majority stake in this company after acquiring the shares of IL&FS and E-TRADE FINANCIALS. b)

Tax planning: Even though tax planning was good by the company experts, the

payment of tax has considerably increased due to increased net profit before tax. c)

Maintaining all the financial records of the transactions

d)

Reporting to management about financial performance: Every quarter the

financial reports which include mainly Balance Sheet and Profit & Loss accounts are submitted to top management for various decision making purpose.

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e)

Dividend decision making: As the financial performance of the company was very

good, high amount of dividend per share was given to the shareholders. f)

Communication with regulatory body’s: Reporting to SEBI, RBI and other

regulatory bodies about the financial condition of the company. All the financial institutions & NBFC’s should report to the SEBI about the financial condition and performance of the company for various regulatory compliances. g)

Maintaining the relationship with all the shareholders. This is also one of the

main functions as keeping all shareholders happy is very important for long term support in the form of finance and ownership. Financial results are very good as observed since its inception. This is done through effective cost cutting measures, good financial planning and budgeting.

From the report of previous financial year we can say that the performance of the company is increasing year after year. This point is proved by the increase in the Net Profit for the period which has risen to 5496.39lakhs from 4000.41lakhs. This led to announce of huge dividend for the previous financial year performance which stood at Rs.3 per share. The financial statements are prepared on the historical cost convention, and are in accordance with the regulatory requirements, the statutory provisions, and standard accounting practices prevalent in India and applicable accounting standards issued by the Institute of Chartered Accountants of India (ICAI).

Operations: This is one of the most critical sub-department which decides all policies and procedures for the company. It also sets the objectives and goals for the company. It measures the overall performance of the company with the set standards. It is in this department overall strategic policies are made. It sets the rules and regulations to control the operations of all the branches all over India.

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MARKETING & SALES Marketing is the process of discovering and translating consumer needs and wants into product and service specifications, creating demand for these products and services and then in turn expanding the demand. It is also said that marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating exchanging products and value with others. Some of the main duties and function of this department in IL&FS Investsmart are as follows Functions of Marketing & Sales Departments Some of the functions performed by IL&FS Investsmart marketing and sales departments are as follows: •

Create new market for product and services which is offered by IL&FS Investsmart

•

Giving training to customer

•

Target the prospective customer who is aggressive

•

Creating brand image & public relation

•

Providing after sales service to customer

•

Giving training to their trainees

This department is the largest of all the other section in this company. This department employs over more than 800 employees all over India consisting of Zonal Sales Managers, Regional Sales Managers, City managers, Deputy Managers, Assistant Managers, Senior Trainee’s and Trainee’s. This department works very closely and very efficiently. This can be proved by the way it creates new market and new customers for all the services without having the support of advertising. This company doesn’t believe in advertising but believes in giving high quality service to existing customers and then creating new customers and market

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through word of mouth. This company has over more than 500000 highly satisfied customers all over India.

HUMAN RESOURCE MANAGEMENT HRM is the planning, organizing, directing, and controlling of the procurement, development, compensation, integration and maintenance of people for the purpose of contributing to organizational, individual and social goals. This department has played a vital role directly and indirectly in contributing for the good performance of the company since its inception. Some of the main functions of this department which played vital role in IL&FS Investsmart are: a)

Selecting high quality people with great ability and proper attitude

b)

Training & development of people in various areas.

c)

Motivating by announcing various incentives for performance

d)

Recruiting large number of self-motivated sales people

Functions of HR Department •

Recruitment : IL&FS Investsmart follows both internal and external

recruitment. If the suitable candidates are available internally, through circulars a notification is sent to the employees. If candidates are not available internally, external recruitment is followed. Sources used for external recruitment are campus recruitment and walk-in. They normally recruit fresh MBA’s for the trainee sales positions which is the entry level in the company. Today, this company has more than 3000 professionals serving more than 200000 clients. •

Training & Development: Training and development of young trainees are

given too much of importance, as this affects the future performance of the individual employees. They give training in all the financial areas like equities, derivatives, mutual funds etc… All the technicalities are thought in these training ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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sessions to the candidates. Some of the effects which have happened due to high effective training and development are: i.

Good relationship building skills among the sales people.

ii.

Proper communication skills.

iii.

Proper behavioural skills among sales people.

iv.

Good attitude and self-motivated employees.

v.

Great amount of knowledge about the market has been acquired by sales people, which are effectively used by them while convincing the customers.

vi.

Increase in confidence level among employees.

ADVISORY DEPARTMENT Basically IL&FS Investsmart have following types of services division. They are: a. Mutual Fund Advisory Services Division. b. Portfolio Management Services (PMS) Division. c. IPO Advisory & Distribution Services Division. d. Insurance Services Division. e. NRI Service Division.

a. Mutual Fund Advisory Services Division As a part of Mutual Fund Advisory Services, their team of experts across India helps investors in selecting the right scheme from over 500 offerings, matching customer needs, goals and risks. In addition to this, IL&FS also help customer constantly monitor their MF portfolio, making changes according to their changing needs as per the market scenario, in order to make their money work for investors. ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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At IL&FS Investsmart, their expert teams of relationship managers interact with investors on a regular basis to discern customer changing needs, in tune with the changing environment. Most of investors require some assistance in making selections appropriate to their individual needs. Investors need sound advice from people who have expertise to decipher the financial jargon of investment options available today. Their Investment Advisory Team helps customer customize and execute plans, based on their individual needs towards wealth maximization. b. Portfolio Management Services (PMS) Division Financial markets today offer enormous growth potential. But managing investors own investments can be an extremely challenging task. Anticipating market trends, assessing the impact of socio-economic changes on customer investments, keeping abreast of latest corporate developments and financial analysis all adds up. Managing one’s investments has become nearly a full-time affair that requires considerable time and expertise. At IL&FS Investsmart, they offer customer just the solution that allows customer to relax as IL&FS put their money to work through the IIL-PMS, a Discretionary Portfolio Management Service. c. IPO Advisory & Distribution Services Division IL&FS Investsmart is one of India's leading companies engaged in the activity IPO Advisory and Distribution. Our primary markets division does a comprehensive research before recommending issues to clients. Our pan India reach helps us in mobilizing large number of applications across India during public offerings; this has ensured that we constantly figure amongst the top ranking performers in the primary market distribution space. The primary markets distribution division works in conjunction with the retail and wholesale distribution networks, as well as our private client group. In case you are not our customer, but still want to invest in any particular IPO, they suggest investor to visit any of their branch locations near you or else call us for an application form and they would courier it to customer. ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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d. Insurance Services Division IL&FS Investsmart is your one stop shop for all Insurance & Retirement needs. They have also been recognized as India’s Best Retail Financial Advisors at the CNBC TV18 Financial Advisory Awards 2006. Their key service features include the following: •

Risk management solutions for all;

•

Comprehensive research for all policies available on a regular basis;

•

Recommendations on a comprehensive insurance cover based on clients needs;

•

Maintain proper records of client policies; and

•

Continuous monitoring of client account.

e. NRI Service Division IL&FS Investsmart is one of India's prime financial services company and is committed to creating a differentiated financial services organisation by leveraging technology to deliver the most compelling combination of product, service and price to a value driven consumer. We now offer our investment solutions to meet the financial objectives of NRIs. Our end-toend investment solutions guide you at every step of your investment in India right from PAN Card Assistance to formulating & executing investment plans based on NRI requirements, robust trading platforms till the assistance on accounting & income tax returns filing in India.

COLLECTION & VERIFICATION This department plays a good role in verifying all the documents of the customers to avail the products and services in this company. There are many documents which are franked due to the regulations of SEBI and there are other documents like PAN card, address proof, bank statements etc which should be properly verified and documented for mistakes and duplicity ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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of the documents. If the documents are found to be with mistakes they are immediately sent back to sales office to get all the correct documents from the customers. If the documents are found to be correct with all respects, the customers are given relevant ID, passwords and other things which are required to access the products and services of the company according to the regulations of SEBI.

Chapter 4 SWOT ANALYSIS INTRODUCTION ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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SWOT Analysis is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and threats for a business entity. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieving that objective. The technique is credited to Albert Humphrey, who led a research project at Stanford University in the 1960s and 1970s using data from fortune 500companies •

Strengths: Attributes of the organisation which are helpful to achieving the

objective.

•

Weaknesses: Attributes of the organisation which are harmful to achieving

the objective.

•

Opportunities: External conditions which are helpful to achieving the

objective.

•

Threats: External conditions which could damage the business’s

performance.

SWOT ANALYSIS OF IL&FS INVESTSMART LTD. Strengths  Customization: It understands the dreams, needs, aspirations, concerns and

resources are unique and this is reflected in every move they do for the sake of individual customer. This is the greatest value it provide online trading products like Smart Invest and Smart Trade.

 Expertise: IIL brings within the customers reach their institutional expertise and

the ability to effectively combine an invaluable understanding of the financial markets, with an intention of building a long-term partnership. ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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 One-stop-shop for all the investment needs: IIL gives all the types of services

and products an individual investor can dream and think off. All the financial products and services are under one-roof.  Unbiased and objective advice: The teams of expert investment advisors

customize plans to suit the needs of investors.  Extensive reach: IIL make sure that they are always accessible to customers

through a host of mediums. A customer can contact them either through website or through their branches and channel partners of more than 300 offices across India.  Brand image: IIL as such is a well known brand in industry.  Competitive pricing: It charges less brokerage compared to its competitors.

Weaknesses  Expensive products: Some of the products like SmartTrade are quite

expensive. An annual charge for SmartTrade is Rs. 3000.  Tedious procedures: Tedious procedures and delays in processing the data

and documents of new customers.  Fund transfer: It has tie-ups with only 5 banks for online fund transfer,

where as other competitors have more tie-ups.  Attrition: High attrition rates in trainees category.  Unattractive offers: Some offers of the company like Advance Subscription

Plan with a deposit of Rs.50,000 to avail low brokerage charges. The low brokerage charges will be effective for the clients for a minimum turnover of Rs. 50 Crore p.a.

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Opportunities  Indian economy seems to be out of recession. This is the right time for inventers to re-enter the market. The company should adopt some strategies to increase the business through existing clients.  The increasing number of management graduates helps to get sales force at trainee levels at less salaries or commission basis. It reduces the salaries and commissions expenses of the company. The company can tie up with reputed B Schools for trainees.  Huge untapped market in rural areas, Tier2 and Tier 3 cities and towns of India can

be concentrated to increase the business.  Many a banks are offering fund transfer services. The company can increase the tie-

ups for fund transfers at attract customers of different banks.

Threats  Stiff competition from existing players in the market and there is also a threat of new

entrants. It has lead to cut throat competition in terms of brokerage charges and exposure.  Increasing awareness of mutual funds and ULIPs created by Domestic Institutional

Investors has reduced the direct investment in to stock market to some extent. This automatically reduces the business of stock brokers.  Changing economic scenario in India and changes in government policies will have great impact on the revenue of this company  Many a investors burnt their figures during the bearish market conditions. It has turned many a trading accounts inoperative.

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CHAPTER 5 SPECIAL TASK - PORTFOLIO MANAGEMENT SERVICE AT IL&FS INVESTSMART LIMITED INTRODUCTION Financial markets today offer enormous growth potential. For a lay investor, it is very difficult to manage their portfolio. Anticipating market trends, assessing the impact of socioeconomic changes on their portfolio, keeping abreast of latest corporate developments and financial analysis all adds up. Managing one’s investments has become nearly a full-time affair that requires considerable time and expertise. To sign up for this service customer will have to fill in the Client Registration Form. In addition to this, customer will have to execute an Agreement and a Power of Attorney in favor of IL&S Investsmart, establishing a Principal-Agent relationship, which allows IL&FS Investsmart to act on investors behalf. IL&FS Relationship Managers will be only too happy to assist costumer in the matter. When it comes to investing customers hard earned money, they need to partner with someone customer trust, one who will make customers money work hard. They need someone who can guide customer through the complex maze of investment options with unbiased advice. In short, an expert who will understand customer needs and help to reach their financial goals.

PORTFOLIO MANAGEMENT SERVICE AT IL&FS INVESTSMART

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Through the PMS Service, IL&FS will assist you in building an ideal portfolio and then regularly monitor the investments. This product is ideal for individuals who may not have the time to track and monitor their investments At IL&FS Investsmart securities ltd (IISL), IL&FS Investsmart offer customer just the solution that allows customer to relax as we put their money to work through the IISL-PMS, a Discretionary Portfolio Management Service. Salient Features of Portfolio Management Services at IL&FS Investsmart •

Minimum investment: The minimum desired portfolio size for the Portfolio Management Service is Rs. 5 lakhs

•

Operational details: IL&FS Investsmart Relationship Managers are well equipped to provide customer with all the necessary support in terms of opening PMS account as well as provide solutions to customer queries in future.

•

Management fees: Account maintenance fees are payable at the end of the year for iPreserve and management fees are payable quarterly for iGrowth.

•

Investment management decisions: IL&FS service is discretionary, which means that all investment decisions will be taken by IL&FS Investsmart portfolio managers in good faith. The investor will have access to the portfolio on a real-time basis through the internet and through monthly reports.

Eligibility The following categories of customer are eligible for PMS at IL&FS Investsmart: •

Individuals

•

Hindu Undivided Families

•

Association of Persons

•

Limited Companies

•

NRIs

•

Overseas companies

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•

firms

•

societies

•

overseas Trusts (subject to RBI approval)

IL&FS Investsmart – PMS Options Portfolio management service (PMS) is a type of professional service offered by IL&FS Investsmart to their client to help them in managing their money in less time. IL&FE Investsmart manage the stocks, bonds, and mutual funds of clients considering their personal investment goals and risk preferences. Benefits of Choosing Portfolio Management Services (PMS) instead of Mutual Funds While selecting Portfolio management service (PMS) over mutual funds services it is found that portfolio managers offer some very services which are better than the standardized product services offered by mutual funds managers. Such as: •

Asset Allocation: Asset allocation plan offered by Portfolio management service PMS helps in allocating savings of a client in terms of stocks, bonds or equity funds. The plan is tailor made and is designed after the detailed analysis of client's investment goals, saving pattern, and risk taking capacity.

•

Timing: portfolio managers preserve client's money on time. Portfolio management service PMS help in allocating right amount of money in right type of saving plan at right time. This means portfolio manager provides their expert advice on when his client should invest his money in equities or bonds and when he should take his money out of a particular saving plan. Portfolio manager analyzes the market and provides his expert advice to the client regarding the amount of cash he should take out at the time of big risk in stock market.

•

Flexibility: portfolio managers plan saving of his client according to their need and preferences. But sometimes, portfolio managers can invest client's money according

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to his preference because they know the market very well than his client. It is his client's duty to provide him a level of flexibility so that he can manage the investment with full efficiency and effectiveness. In comparison to mutual funds, portfolio managers do not need to follow any rigid rules of investing a particular amount of money in a particular mode of investment. Mutual fund managers need to work according to the regulations set up by financial authorities of their country. Like in India, they have to follow rules set up by SEBI. Every investor is unique and has unique investment preferences and risk appetites. IL&FS Investsmart offer a choice of two types of PMS schemes 1.

iPreserve

2.

iGrowth

1. IPRESERVE iPreserve is a discretionary investment management scheme, offering investment solutions in Mutual Funds that are aligned to suit customer financial goals. The primary objective of iPreserve is to manage investments in Mutual funds, encompassing both debt as well as equity schemes. iPreserve takes care of complete execution of the investment and monitoring on investors behalf. Features of iPreserve Investors have a choice of five schemes based on investor risk profile – Very High / High / Moderate / Low / Very Low •

High Risk: Pure Growth oriented investment strategy aimed at wealth creation

•

Moderate Risk: Balanced investment strategy aimed at both, capital appreciation and preservation.

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•

Low Risk: Conservative investment strategy aimed toward capital preservation plus some more

Benefits of iPreserve •

No management fee charged for managing the funds

•

Asset allocation as per the client risk profile.

•

Convenience of investing in multiple funds through a single product.

Investment Strategy •

Adopt Model portfolios to guide investments across products.

•

Proactive management of funds.

•

Adequate diversification with an aim to optimize risk-adjusted returns.

Table 5.1 - Features of iPreserve

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Details

Plan

Minimum portfolio values

Rs 5 lakhs

Additional investments

Rs 1 lakhs or more

Account maintenance fees Billing frequency

Rs 1000 p.a At the end of the year or termination whichever isEarlier

Exit Load for withdrawal before expiry of one year (first year) •

Complete withdrawal

•

Partial withdrawal*

1% p a on monthly folio values 0.5% on the amount withdrawn

Load for withdrawal after first year (full/part withdrawal) Nil

*For Partial withdrawal, following rules are applicable: •

Part Withdrawal is allowed only twice in a year;

•

Amount should be more than Rs. 1 lakhs; and

•

Minimum account balance after such withdrawal should be more than the threshold limit of Rs. 10 lakhs.

2. IGROWTH iGrowth is a discretionary portfolio management scheme focusing on investments in equities and derivatives with an objective of growth. It aims at creating long-term wealth through ACHARYA INSTITUTE OF MANAGEMENT & SCIENCES

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judicious stock selection and asset allocation Features and Benefits of iGrowth Investors have a choice of three schemes based on investor risk profile - High / Moderate / Low. •

High Risk: Dynamically managed product to capture medium term upsides from attractive business profiles, relative under-valuations, cyclical factors within sectors and technical factors. Expect higher portfolio turnover.

•

Medium Risk: Combines growth/value styles of investing in long-term growth opportunities across sectors and market caps.

•

Low Risk: Endeavours to minimize risk and yet offer stable and modest returns, through judicious mix of defensive stocks. Emphasizes on quality of businesses and pricing. Investment Strategy

•

Adopt Model Portfolios to guide investments across products.

•

Bottom-up approach to stock picking.

•

Portfolio composition of 20-30 stocks to provide sharper sector focus while providing adequate diversification.

•

Domestic market focus with a global perspective.

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Table 5.2: Features Of igrowth Details Minimum portfolio values Additional investments PMS fees Normal

Plan A Rs. 10 lakhs Rs. 1 lakh or more

Plan B Rs. 10 lakhs Rs. 1 lakh or more

2% p.a on monthly

Part A -1% p.a on monthly portfolio values (billed on quarterly basis) PLUS Part B - 15% annual performance linked fee to be

-

If

fully

withdrawn

before 1 year Billing frequency

2% p.a on monthly

charged over 8% returns same as above

At the end of each

for Part A- Quarterly

quarter for Part B - yearly or date of termination whichever is earlier Geometric Mean Method

Calculations based on Monthly Portfolio Values Load for withdrawal before expiry of one year (first year) - Complete withdrawal 1.5% on the portfolio 1.5% on the portfolio value - Partial withdrawal* Load for withdrawal after first

year

(full/

value 1.5% on amount

1.5% on amount withdrawn

withdrawn Nil

Nil

part

withdrawal)

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*For Partial Withdrawal, following rules applicable:

•

•

Part withdrawal can be done only twice a year;

•

Amount should be more than Rs 1 lakhs; and Minimum balance after such withdrawal should be more than

the threshold limit of Rs 10 lakhs. Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk. In the case of mutual and exchange-traded funds (ETFs), there are two forms of portfolio management: passive and active. Passive management simply tracks a market index, commonly referred to as indexing or index investing. Active management involves a single manager, co-managers, or a team of managers who attempt to beat the market return by actively managing a fund's portfolio through investment decisions based on research and decisions on individual holdings. Closed-end funds are generally actively managed.

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Chapter 6 FINDINGS, SUGGESTIONS AND CONCLUSION FINDINGS Findings – Organization Study  ILL understands the dreams, needs, aspirations, concerns and resources are unique and this is reflected in every move they do for the sake of individual customer. This is the greatest value it provide online trading products like Smart Invest and Smart Trade  IIL brings within the customers reach their institutional expertise and the ability to effectively combine an invaluable understanding of the financial markets, with an intention of building a long-term partnership  IIL gives all the types of services and products an individual investor can dream and think off. All the financial products and services are under one-roof.

 It charges less brokerage compared to its competitors.  Some of the products like SmartTrade are quite expensive. An annual charge for SmartTrade is Rs. 3000.  Tedious procedures and delays in processing the data and documents of new customers.

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 Due to the presence of top players in the capital market, the revenues of the company declines from financial year 2008-09 to 2009.

 According to the company research report 2008o It is clear that people are ready to bear medium risk in anticipation of average returns. o Most investors prefer short term investments they regularly prefer to change their investment patterns according to the changes and updations. o Investors study the past performance carefully before they invest into any of the investments.

Findings – Special Task  Through the PMS Service, IL&FS will assist you in building an ideal

portfolio and then regularly monitor the investments. This product is ideal for individuals who may not have the time to track and monitor their investments.  At IL&FS Investsmart securities ltd (IISL), IL&FS Investsmart offer

customer just the solution that allows customer to relax as ILL put their money to work through the IISL-PMS, a Discretionary Portfolio Management Service  Salient Features of Portfolio Management at IL&FS Investsmart are as under: o

Minimum investment: The minimum desired portfolio size for the

Portfolio Management Service is Rs. 5 lakhs o

Operational details: IL&FS Investsmart Relationship Managers are

well equipped to provide customer with all the necessary support in terms of opening PMS account as well as provide solutions to customer queries in future.

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o

Management fees: Account maintenance fees are payable at the end of

the year for iPreserve and management fees are payable quarterly for iGrowth.

o

Investment management decisions: IL&FS service is discretionary,

which means that all investment decisions will be taken by IL&FS Investsmart portfolio managers in good faith. The investor will have access to the portfolio on a real-time basis through the internet and through monthly reports.

SUGGESTIONS  Indian economy seems to be out of recession. This is the right time for inventers to re-enter the market. The company should adopt some strategies to increase the business through existing clients  Many a banks are offering fund transfer services. The company can increase the tieups for fund transfers at attract customers of different banks  By having been acquired by HSBC this company has the opportunity to become international brand if they expand outside India

 IL&FS Investsmart can tie up with retail malls and take franchisee of the company in their malls.

 Company should create the awareness about investment in securities among the

investors. They should visit the general public, businessmen, government offices and

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other work places and guide them about the stock market. This will help the company to large customer base.

 The company can conduct seminars, workshops on capital markets, so that customers will come to know about the risk and return involved in investing equity market.  The company has to provide proper training to new investors to avoid losses.  Even the investors should take initiative and form as forums to develop their knowledge towards investments as now days there are several types of financial products available for the profitability of the investors.

CONCLUSION Most of the financial products in India are still at a growth stage and hence there are ample of opportunities for all the financial services offered companies to tap investments. The perception of investors is yet to be changed because still they feel comfortable in traditional style of investment i.e., investing in Mutual funds rather than investing in Derivatives or Equity. Hence, there is a lot amount of education has to be provided to make people aware of various investment opportunities. In a growing economy as ours every investor if wisely takes decision to invest can expect a lot of returns. But knowledge of investing in Stock market is only limited to young urban population and does not have enough penetration in tier 2 and tier 3 cities and almost nil in rural areas.

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To excel and achieve a sustainable growth under current market situation with lots of completion in financial sector, IL&FS Investsmart needs to endeavor with maximum efforts. The company can achieve several more major milestones in future by maintaining the existing customer relationship [CRM]. Overall, IL&FS Investsmart is able to give more than satisfactory services to its customer’s all over India. With state of art infrastructure and well established network of branches all over India will no doubt will make it to climb the ladder of leadership in the brokerage industry and truly become “India’s financial multiplex”. The company’s claim of being “India’s financial multiplex” is very true as it continues to provide high quality financial products and services to lacks of customers by understanding their investment needs individually and satisfying them with all the financial products and services they can imagine.

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