24. cash mgmt-fin

8/12/2019 24. Cash Mgmt-fin

1/47

Under The Guidance of:

Jyotiprakash Sahoo

Submitted By:

ASIT KUMAR SAHOO

Regd. No: 1/2078/08Roll No: 09MBA111

!!"#$ SAMBA%&'R 'N()#RS(*+

AS(* ,'MAR SA- MBA08 1


2/47

CONTENTS

1. Acknowledgement

2. Introduction

3. Company Profile

4. Importance of Training

5. Training Seion

5.1. !iterature "e#iew of Indian Capital $arket % $utual fund

5.2. Type of $utual &und

5.3. Type of In#etment

5.4. Corporate In#etment

'. &inding

(. "ecommendation

). Concluion

*. +i,liograp-y



3/47

DECLARATION

I, Asit ,ar Sahoostudent of Master of Business Administration,

Under DDCE, Sambalpur University do here by declare that the

study entitled"AS- MANA3#M#N*4 is a report of my own I am

proud to proclaim that I have completed my study under the sincere

!uidance of Jyotiprakash Sahoo "#ecturer $inance% alon! with

faculty members of &ICE, B'I&DA ( with association of my intimate

friends whose co)operation helped me to accomplish my pro*ect (

ma+e it a valuable one All the data that are stated in this pro*ect are

true and best of my +nowled!e based on real records, *ournals,

ma!aines, ( findin!s that made it fully authentic and !enuine

-his pro*ect has not been submitted to any other (5stitte /

'5i6ersityfor the award of any de!ree or diploma.

.lace/ Boinda Asit 0umar Sahoo

Date/ 1e!d &o/ 234567357

AS(* ,'MAR SA- MBA08


4/47

"#R*(("A*#

-his is to certify that Mr Asit 0umar Sahoo , a student of

DDCE, Sambalpur University has prepared a Summer -rainin!

.ro*ect 1eport on 8CAS9 MA&A:EME&-; at .ollutech En!ineerin!

a partial fulfillment of MBA de!ree from 2e wish all success in his future endeavor

.lace:Boinda Jyotiprakash Sahoo

Date :



5/47

A",N%#!3#M#N*S

A successful pro*ect is a fruitful accumulation of efforts of many people, some

directly involve and others who have ?uietly encoura!ed and e@tended their

valuable support throu!hout its development

I am !rateful to Mr Dilip -ripathy, CE' .ollutech En!ineerin!, for bein! a source

of inspiration for learnin! continuously

I ta+e this opportunity to e@press my sincere than+s to Mr Alo+ Mohanty , the

Branch Mana!er, Invest Care

I wise to deep sense of !ratitude to Jyotiprakash Sahoo"$inance% for providin!

valuable !uidance of &ICE, Boinda for permittin! me to perform my pro*ect

under his constant !uidance

Also, would li+e to than+ my parents and each and every person who has helped

me in some or other way in the successful completion of my pro*ect wor+

Asit 0umar Sahoo



6/47

I&-1'DUC-I'&

Ca- t-e mot li/uid aet i of #ital importance to t-e daily operation of ,uine firm. 0-ile

t-e proportion of corporate aet -eld in t-e form of ca- i #ery mall often ,etween 1 and 3

percent it efficient management i crucial to t-e ol#ency of t-e ,uine ,ecaue in a #ery

important ene ca- i t-e focal point of fund flow in a ,uine. In #iew of it importance it i

generally referred to a t-e !ife ,lood of a ,uine enterprie

0-y doe a firm need ca- A o-n $aynard eyne put fort- t-ere are t-ree poi,le moti#e

for -olding ca-.

Tranaction moti#e6 &irm need ca- to meet t-eir tranaction need. T-e collection of ca- 7from

ale of good and er#ice ale of aet and additional financing8 i not perfectly ync-roni9ed

wit- t-e di,urement of ca- 7for purc-ae of good and er#ice ac/uiition of capital aet

and meeting ot-er o,ligation8. :ence ome ca- ,alance i re/uired a a ,uffer.

Precautionary moti#e6 t-ere may ,e ome uncertainty a,out t-e magnitude and timing inflow from

ale of good and er#ice ale of aet and iuance of ecuritie. !ikewie t-ere may ,e

uncertainty a,out ca- outflow on account of purc-ae and ot-er o,ligation. To protect itelf

againt uc- uncertainty a firm may re/uire ome ca- ,alance.

Speculati#e moti#e6 &irm would like to tap profit making opportunitie arri#ing from fluctuation in

commodity crii ecurity crii interet rate and foreign e;c-ange rate. A ca-< ric- firm i ,etter

prepared to e;ploit uc- ,argain. :owe#er for mot firm t-ere reer#e ,orrowing capacitie and

marketa,le ecuritie would uffice to meet t-ere peculati#e need.

0-ile ca- er#e t-ee function it i an idle reource w-ic- -a an opportunity cot. T-e

li/uidity pro#ided ,y ca- -olding i at t-e e;pene of profit acrificed ,y foregoing alternati#e

in#etment opportunitie. :ence t-e financial manager -ould 7i8 eta,li- relia,le forecating and

reporting ytem 7ii8 impro#e ca- collection and di,urement and 7iii8 ac-ie#e optimal

coner#ation and utili9ation of fund.

C'M.A& .1'$I#E

AS(* ,'MAR SA- MBA08 ;


7/47

Pollutec- =ngineering wa eta,li-ed in t-e year 1**> and tarted it ,uine dealing wit-

tec-nologie to reduce pollution in Indutrial application. In t-e year 1**5 it di#erified into mineral

proceing and contruction e/uipment.

Pollutec- ,ecame a dealer for ?ol#o Contruction =/uipment product in Septem,er 2>>3 for t-e

tate of @ria . It i in#ol#ed in ale er#ice and pare part upport for t-e full range of ?ol#o

Contruction =/uipment old in India. Prior to ,eing a ?ol#o C= dealer Pollutec- wa aociated

wit- ?ol#o a a ale agent ince year 1***.

Pollutec- =ngineering -a ,een a dealer for Sand#ik Aia !imited 7ertw-ile S#edala deign8

ince 2>>> for elling Cru-ing % Screening =/uipment and pare part for t-eir "ock Proceing

=/uipment in t-e tate of @ria -ark-and 0et +engal and C-attigar-.

Pollutec- =ngineering -a an aociation wit- 0acker ermany for t-eir lig-t compaction and

concreting e/uipment.

Pollutec- =ngineering i alo engaged a a ale agent for Sc-wing Stetter ermany for t-eir

range of contruction e/uipment product like Concrete pump ,atc-ing plant tranit mi;er

etc

I$P@"TABC= @& T"AIBIB



8/47

T-e financial er#ice indutry i undergoing a period of ignificant c-ange dri#en ,y regulatory

compliance uc- a t-e fort-coming $i&I and Capital "e/uirement irecti#e legilation.

:owe#er t-i doe not dimini- t-e importance for companie to maintain a contant focu on

impro#ing efficiency and producti#ity to deli#er inno#ati#e output in an increaingly competiti#e

,uine en#ironment.

$uc- of t-e legilation will dictate w-at information and record need to ,e a#aila,le for

inpection reporting or audit ,ut will rarely if e#er ad#ie on -ow to manage t-em.

@,Decti#e olution ena,le effecti#e recordkeeping ,y enuring t-at record are created tored

and maintained in a controlled and audita,le en#ironment. +y uing @,Decti#e any type of

information p-yical or electronic from paper t-roug- to #ideo or from te;t document to audio

file can ,e tored wit-in and referenced from a ingle central content repoitory.

Indi#idual department can alo apply t-eir own ,uine procee w-ilt gi#ing people acce

to t-e information t-ey re/uire from one central location. T-i pro#ide a more tranparent #iew of

t-e organi9ationE information reduce duplication of work and enure t-at account are -andled

conitently acro department.

$anaging content electronically alo ignificantly reduce t-e cot aociated wit- toring

p-yical document t-e amount of time needed to earc- for information and t-e rik of non>> 5>*4 1>1(> )2>) *5>3 1>52

2>'5 (42 121> *3' 3*>> *11)21 51) 2') 325 )1' (>>

11112 )525 1'33* 12332 1(>45 43>'

Bote618 &inancial analyi ,aed on t-e data of aement year 2>>(>)

&orecat of ca- payment6

F&igure are in IB" 7in lac8G

an &e, $ar April $ay une1 $aterial purc-ae2 Payment of account paya,le3 $arketing e;pene4 Salarie5 Inurance payment

' eneral adminitrati#e andelling e;pene( i#idend) Interet* In#etment1> Ta;6Income ta;6=ntry ta;6?AT11 Capital e;penditureTotal payment

72345'()*1>118

1334) ('*2 1>)>2 **'1 15415 13>'324) 2'4 2'* 4>4 4)1 42(

'> 3) (( 1>* 5( 2*24) 2'4 2'* 4>4 4)1 42(

54 1( *4 5* )1 1111(' 1>>> 3))( 221) 35*) 14)2

2 2 2 2 2 2332 3>2 422 344 3*> 4>2 5

5''2>2 21> 344 1>4 2)' 3>113'2 *3> 1')> 4'4 ))> 1>11'5> )34 )(5 3(5 **) )5)

Bote6

2% ". 5>>>>> in#eted in -ort term parking in li/uidH floating rate fund on $&S.

e#iation from e;pected ca- flow6



12/47

=;preed a it i in num,er t-e ca- ,udget often con#ey a picture of preciion.

:ence a great deal of fait- i uually put on it. A momentE reflection -owe#er would

re#eal t-at t-e figure found in t-e ca- ,udget merely repreent etimate of future ca-

flow. T-e actual ca- flow are likely to de#iate from t-e etimate pro#ided in t-e ca-,udget< t-e e;tent of de#iation depend mainly on -ow #olatile are t-e ca- flow of t-e

,uine.

Summary Ca- forecat6

F&igure are in IB" 7in lac8G

an &e, $ar April $ay une1 @pening ca- ,alance

2 "eceipt3 Payment4 Bet ca- flow 72 15'3 3'>( 21))34 111 153 (*3 2* 31

3541 > >>> 31'34 35*)* 34*''

').*2 51.(' *> '>.11 133.'> )(.52

3')5.>) 31>*5.24 2**1> 315(3.)* 35)55.4 34)().4)

Bote6

1. In cumulati#e net ca- flow it i -owing negati#e ,alance in t-e data of t-ree mont-

7i.e. fe,marc-april8 ,ecaue6a8 !ow ,uine.,8 :ea#y in#entory.c8 $ore credit ale t-an ca- ale.

2. !ong term ca- forecating6T-e di#iding line ,etween -ort term ca- forecat and long


13/47

tatement eek to etimate t-e firmE need for ca- at ome future date and indicate

w-et-er t-i need can ,e met from internal ource or not. A format for preparing t-e

adDuted net income forecat a -own ,elow6

A format for t-e adDuted Bet Income $et-od6

2>;> 2>;1 2>;2 2>;3 2>;4Source Bet income after ta;e Bon


14/47

&loat6 T-e ca- ,alance -own ,y a firm on it ,ook i called t-e ,ook or ledger

,alance -own in it ,ank account i called t-e a#aila,le or collected ,alance. T-e difference

,etween t-e a#aila,le ,alance and t-e ledger ,alance i referred to a float.

T-ere are two kind of float i.e. di,urement float and collection float. C-e/ue iued ,y

a firm create di,urement float.

Speeding up collection6

T-e collection time comprie mailing time c-e/ue proceing delay and t-e ,ankE

a#aila,ility delay a -own ,elow6

0-en a company recei#e payment t-roug- c-e/ue t-at arri#e ,y mail all t-e t-ree

component of collection time and rele#ant. To peed up collection companie may ue

lock,o;e and concentration ,anking w-ic- are eentially ytem for e;peditiou

decentrali9ed collection.

!ock +o;e6 Jnder a lock ,o; ytem cutomer are ad#ied to mail t-eir payment to

pecial pot office ,o;e called lock,o;e w-ic- are attended to ,y local collecting ,ank

intead of ending t-em to corporate -ead/uarter.T-e local ,ank collect t-e c-e/ue from t-e lock ,o; once or more a day depoit t-e

c-e/ue directly to t-e local ,ank account of t-e firm and furni-e detail to t-e firm.T-u t-e lock,o; ytem 7i8 cut down t-e mailing time ,ecaue c-e/ue are recei#ed at

a near,y pot office intead of at corporate -ead/uarter 7ii8 reduce t-e proceing time

,ecaue t-e company doe not -a#e to open t-e en#elope and depoit t-e c-e/ue for

collection and 7iii8 -orten t-e a#aila,ility delay ,ecaue t-e c-e/ue are typically drawn

on local ,ank.

Concentration ,anking6 In t-i ytem t-e company ak it cutomer in a particular area

to end payment to a local ,ranc- office rat-er t-an to corporate -ead/uarter. T-e

c-e/ue recei#ed ,y t-e local ,ranc- office are depoited for collection into a local ,ank

account. Surplu fund from #ariou local ,ank account are tranferred regularly 7motly

daily8 to a concentration account at one of t-e companyE principal ,ank. &or effecting t-e

tranfer e#eral option.Concentration ,anking can ,e com,ined wit- lock,o; arrangement to enure t-at t-e

fund are pooled centrally a /uickly a poi,le.

5. @ptimal ca- ,alance6



15/47

If a firm maintain a mall ca- ,alance it -a to ell -i marketa,le ecuritie 7and

per-ap ,uy t-em later8 more fre/uently t-an if it -old a large ca- ,alance. :ence t-e

trading or tranaction cot will tend to dimini- if t-e ca- ,alance ,ecome larger.

:owe#er t-e opportunity cot of maintaining ca- rie a t-e ca- ,alance increae.

6. In#etment ofurplu fund6

Companie often -a#e

urplu fund for -ort period of time ,efore t-ey are re/uired for capital e;penditure

loan repayment or ome ot-er purpoe. Intead of allowing t-ee urplu fund to

accumulate in current account w-ere t-ey earned no interet companie in#et t-em in a

#ariety of -ort term in#etment like depoit in ,ank money market mutual fund and

o on. $anaging t-e in#etment of urplu fund i a #ery important reponi,ility of t-efinancial manager. T-i -a ,ecome more o in recent year t-ank to -ig-er corporate

li/uidity and wider ranger of in#etment option.

Indian Capital $arket wa eta,li-ed in t-e year 1)(5. T-i i now popularly known a +S=

wa eta,li-ed a T-e Bati#e S-are % Stock +rokerE Aociation in 1)(5. It wa tarted in

+om,ay a an B@ later on in 1*5( it wa appro#ed ,y t-e o#ernment of India.

In early 1*>> it wa named a +om,ay Stock =;c-ange. It wa regulated ,y Security %

=;c-ange +oard @f India and t-i wa regulated ,y Committee &or Capital Affair In India

7CCI8. In 1**1 CCI wa replaced and S=+I wa formulated. In 1**2 T-e Bational Stock

=;c-ange wa created. In 1**3 and 1**4 $AT ytem wa created in 1**5 BS= and +S=

tarted Screen ,aed training. +S= i t-e fat tock e;c-ange in t-e country w-ic- o,tained

permanent recognition 7in 1*5'8 from t-e o#ernment of India under t-e Securitie Contract

7"egulation8 Act 1*5'. +S=E pi#otal and pre


16/47

creen


17/47

CHARACTERISTICS OF MUTUAL FUND

In#etor purc-ae mutual fund -are from t-e fund itelf 7or t-roug- a ,roker for t-e

fund8 ,ut are not a,le to purc-ae t-e -are from ot-er in#etor on a econdary

market uc- a t-e Bew Lork Stock =;c-ange or BASAM Stock $arket. T-e price

in#etor pay for mutual fund -are i t-e fundE appro;imate per -are net aet #alue

7BA?8 plu any -are-older fee t-at t-e fund impoe at purc-ae 7uc- a ale load8.

$utual fund -are are Nredeema,le.N T-i mean t-at w-en mutual fund in#etor want

to ell t-eir fund -are t-ey ell t-em ,ack to t-e fund 7or to a ,roker acting for t-e fund8

at t-eir appro;imate per -are BA? minu any fee t-e fund impoe at t-at time 7uc- a

deferred ale load or redemption fee8.

$utual fund generally ell t-eir -are on a continuou ,ai alt-oug- ome fund willtop elling w-en for e;ample t-ey ,ecome too large.

T-e in#etment portfolio of mutual fund typically are managed ,y eparate entitie

known a Nin#etment ad#ierN t-at are regitered wit- t-e S=C.

ORGANISATION OF A MUTUAL FUND

T-ere are many entitie in#ol#ed and t-e diagram ,elow

illutrate t-e organi9ational et up of a

mutual fund6



18/47

ADVANTAGES OF MUTUAL FUND:

T-e ad#antage of in#eting in a $utual &und are6

Profeional $anagement

i#erification

Con#enient Adminitration

"eturn Potential

!ow Cot

!i/uidity

Tranparency

i,ility

C-oice of c-eme

Ta; ,enefit

well regulated

TYPES OF MUTUAL FUND

0ide #ariety of $utual &und Sc-eme e;it to cater to t-e need uc- a financial poition rik

tolerance and return e;pectation etc. T-e following i t-e claification of #ariou mutual fundc-eme.



19/47

By structur

1. @pen


20/47

Nt Asst V)*u +NAV,:-

Bet Aet ?alue i t-e market #alue of t-e aet of t-e c-eme minu it lia,ilitie. T-e per unit BA? i t-e

net aet #alue of t-e c-eme di#ided ,y t-e num,er of unit outtanding on t-e ?aluation ate.

BA? i t-e cumulati#e market #alue of t-e in#etment or aet of t-e fund net of it lia,ilitie.BA? per unit i t-e net #alue of aet di#ided ,y t-e num,er of unit outtanding. +uying andelling into fund i done on t-e ,ai of BA?


21/47

-he mutual fund industry in India started in 2= with the formation of Unit -rust

of India, at the initiative of the :overnment of India and 1eserve Ban+ the -he

history of mutual funds in India can be broadly divided into four distinct phases

irst &hase < 19;87

Unit -rust of India "U-I% was established on 2= by an Act of .arliament It was

set up by the 1eserve Ban+ of India and functioned under the 1e!ulatory and

administrative control of the 1eserve Ban+ of India In 2=67 U-I was de)lin+ed

from the 1BI and the Industrial Development Ban+ of India "IDBI% too+ over the

re!ulatory and administrative control in place of 1BI -he first scheme launched

by U-I was Unit Scheme 2= At the end of 2=77 U-I had 1s,655 crores of

assets under mana!ement

Se=o5d &hase < 1987199 >#5try o? &@li= Se=tor 5ds

2=76 mar+ed the entry of non) U-I, public sector mutual funds set up by public

sector ban+s and #ife Insurance Corporation of India "#IC% and :eneral

Insurance Corporation of India ":IC% SBI Mutual $und was the first non) U-I

Mutual $und established in une 2=76 followed by Can ban+ Mutual $und "Dec

76%, .un*ab &ational Ban+ Mutual $und "Au! 7=%, Indian Ban+ Mutual $und "&ov

7=%, Ban+ of India "un =5%, Ban+ of Baroda Mutual $und "'ct =4% #IC

established its mutual fund in une 2=7= while :IC had set up its mutual fund in

December 2==5 At the end of 2==, the mutual fund industry had assets under

mana!ement of 1s6,55 crores

*hird &hase < 199200 >#5try o? &ri6ate Se=tor 5ds

>ith the entry of private sector funds in 2==, a new era started in the Indian

mutual fund industry, !ivin! the Indian investors a wider choice of fund families

Also, 2== was the year in which the first Mutual $und 1e!ulations came into

bein!, under which all mutual funds, e@cept U-I were to be re!istered and

!overned -he erstwhile 0othari .ioneer "now mer!ed with $ran+lin -empleton%

was the first private sector mutual fund re!istered in uly 2== -he 2== SEBI



22/47

"Mutual $und% 1e!ulations were substituted by a more comprehensive and

revised Mutual $und 1e!ulations in 2== -he industry now functions under the

SEBI "Mutual $und% 1e!ulations 2== -he number of mutual fund houses

went on increasin!, with many forei!n mutual funds settin! up funds in India andalso the industry has witnessed several mer!ers and ac?uisitions As at the end

of anuary 455, there were mutual funds with total assets of 1s 2,42,75hy donJt most people save re!ularly

#ac+ of awareness 3 concern 3 plannin! for financial !oals

&o money left after monthly e@penses

9assle of +eepin! trac+ of investments

Unaware of power of compoundin!

Benefits of systematic investment plan/

-he power of compoundin!

1upee cost avera!in!

Convenience

Affordability

B"3!ts %3 Syst$)t!c I"#st$"t P*)"s

T( P%4r %3 C%$.%u"/!"566

".1>>> in#eted e#ery mont- for 3> year R1>

Rs7897 *)1(s



26/47

0

10

1

20

2

1 9 1 17 21 2 29

No. years

Rs.%

akhs

A mall amount in#eted regularly can grow to u,tantial lump um


Ru. C%st A#r)5!"566

"upee Cot A#eraging i a trategy in#ol#ing in#eting afi;ed amount of money at regular inter#al irrepecti#eof market condition

It ena,le in#etor to ,uy le w-en price are -ig-and ,uy more w-en price are low

AS(* ,'MAR SA- MBA08 2;


27/47

Mo5th A1o05t NA) '5its

2 2555 24 7CCCC

4 2555 22 =5=5=

C 2555 2C 6B=4CD 2555 2< BBBB6

< 2555 2D 62D4=

B 2555 24 7CCCC

6 2555 25 255555

7 2555 = 222222

= 2555 22 =5=5=

25 2555 7 24


28/47


T( C%"#"!"c66

Pot


29/47

Income O Conumption Sa#ing

ipoa,le Income O Income < conumption.



30/47

W(y I"#st?

To ,eat Inflation To fund future need To meet contingencie To maintain ame tandard of li#ing after retirement.

Cr!tr!) 3%r !"#st$"t:

Beed 6 Capital and to meet t-e uncertainty in ,uine cycle for t-e growt- of t-ecompany in future.

@,Decti#e

"ik apetite

0-o can ,e an In#etor

Indi#idual

Bon


31/47

&inancial year 2>>45

Turno#er< ". 2''.*5 lac

P+IT< ". 13.3) lac

&inancial year 2>>5'

Turno#er< ". 53(.24 lac

P+IT< ". 32.2> lac

&inancial year< 2>>'(

Turno#er< ". 1>1'.*> lac

P+IT< ". '1.'( lac

Asset allocation for savin!3investment



32/47

&und Categorie are of two type6

18 =/uity fund

28e,t fund7S-ort term parking86

a8 &loating &und

,8 &i;ed maturity plan

c8 Income fund

d8 +ond &und

e8 o#ernment Securitie &und

In#etment Portfolio6 T-ree egment



33/47

It may ,e ueful to di#ide a firmE -ort


34/47

e,t c-eme6 A de,t c-eme in#et it corpu primarily in de,t intrument. Some

c-eme may -a#e a mall e;poure to e/uitie.

&or in#eting -ort


35/47

CE are popular form of -ort


36/47

participating in ,ill dicounting a company -ould 7i8 enure t-at t-e ,ill are trade ,ill

7ariing out of genuine tranaction8 and not accommodation ,ill and 7ii8 try to go for

,ill ,acked ,y letter of credit rat-er t-an open ,ill a t-e former are more ecure

,ecaue of t-e guarantee pro#ided ,y t-e ,uyerE ,ank.

AS(* ,'MAR SA- MBA08 ;


37/47

CASH MANAGEMENT MODELS:T-e ca- ,udget of t-e firm indicate period w-en t-e firm i e;pected to -a#e

-ortage of fund and urplu of fund. If a torage i e;pected way and mean of

o#ercoming t-e -ortage mut ,e e;plored. @n t-e ot-er -and if a urplu i

proDected it -a to ,e determined -ow it -ould ,e plit ,etween marketa,le

ecuritie and ca- -olding. In t-i ection t-ere are two model6a. T-e +oumol modelb. T-e $iller and @rr model

a8 +oumol $odel60illiam . +aumol propoed a model w-ic- applie t-e economic order /uantity

7=@M8 concept commonly ued in in#entory management to determine t-e ca-

con#erion i9e 7w-ic- in turn influence t-e a#erage ca- -olding of t-e firm8. T-e

purpoe of uc- an analyi i to ,alance t-e income foregone w-en t-e firm -old

ca- ,alance 7rat-er t-an in#et in marketa,le ecuritie8 againt t-e tranaction

cot inccured w-en marketa,le ecuritie are con#erted into ca-.

To illutrate t-e nature of t-i analyi let conider t-e ituation of Keta !imited. Keta re/uire ". 1.5 million in ca- for meeting it tranaction need

7repreented ,y t-e ym,ol T8 o#er t-e ne;t t-ree mont- it planning

period for li/uidity deciion. T-i amount i a#aila,le wit- Keta in t-e form

of marketa,le ecuritie. To meet t-e proDected ca- need Keta can ell it marketa,le ecuritie

in any of t-e fi#e lot i9e6 1>>>>> 2>>>>> 3>>>>> 4>>>>> 5>>>>>.

T-ee ca- con#erion i9e C are -own in line 1 in t-e ,elow ta,le.

T-e num,er of time t-e marketa,le ecuritie will ,e con#erted into ca-

i imply THC. T-e #alue of THC gi#en TO ". 15>>>>> and C #arying in

t-e range " 1>>>>>< ". 5>>>>> i -own in line 2 in t-e ,elow ta,le. T-e ca- payment are made e#enly o#er t-e t-ree mont- planning

period. T-i mean t-at t-e ca- ,alance of t-e firm ,e-a#e in t-e aw

toot- manner a -own in t-e ,elow ta,le. :ence t-e a#erage ,alance i

imply CH2. T-e a#erage ca- ,alance correponding to t-e different

ca- con#erion i9e are -own in t-e ,elow ta,le. Keta can earn 1' annual yield on it marketa,le ecuritie. T-i implie

t-at t-e interet rate for t-e t-ree mont- planning period i 4

7repreented ,y t-e ym,ol I8. Since t-e a#erage ca- ,alance i CH2 t-e

interet income foregone i CH2>.>4. T-i i -own in line 4 of e;-i,it,elow ta,le.



38/47

T-e con#erion of marketa,le ecuritie into ca- entail a fi;ed cot

7repreented ,y t-e ym,ol ,8 of ".5>> per tranaction. , i independent

of t-e i9e of ca- con#erion. T-e total con#erion cot during t-e

planning period will ,e e/ual to6 num,er of ca- order ; cot pertranaction. T-i i -own in line 5 of t-e ,elow ta,le. In general t-e total

con#erion cot i 7THC8,.

T-e total cot of ordering and -olding TC i -own in line ' of t-e ,elow ta,le.

1 Ca- con#erion i9e 7t-eamount of marketa,le ecuritiet-at will ,e con#erted into ca-8

2 Bum,er of con#erion duringt-e planning period of t-reemont- 715>>>>Hline 183 A#erage ca- ,alance 7line U84 Interet income foregone 7line 3; .>485 Cot of ca- con#erion7".5>>; line 28' Total cot of ordering and-olding ca- 7line 4 line 58

" 1>>>>>

15.>>

".5>>>>

".2>>>

".(5>>

".*5>>

2>>>>>

(.5>

1>>>>>

4>>>

3(5>

((5>

3>>>>>

5.>>

15>>>>

'>>>

25>>

)5>>

4>>>>>

3.(5

2>>>>>

)>>>

1)(5

*)(5

5>>>>>

3.>>

25>>>>

1>>>>

15>>

115>>

!ooking at total cot 7line ' of a,o#e ta,le8 we find t-at it i minimied w-en

C t-e con#erion order i ".2>>>>>. T-i mean t-at at t-e ,eginning of t-e



39/47

planning period Keta -ould con#ert only ".2>>>>> of it marketa,le

ecuritie into ca-. T-e remaining amount -ould ,e con#erted into ca- in

lot of ".2>>>>> a dictated ,y t-e di,ural need of t-e firm.

T-e foregoing analyi may ,e repreented in t-e form of a general model

employing t-e following ym,ol de#eloped in our illutration.

CO amount of marketa,le ecuritie con#erted into ca- per order.

IO interet rate earned per planning period on in#etment in marketa,le

ecuritie.

TO proDected care/uirement during t-e planning period.

TCO um of con#erion and -olding cot.

T-e total cot 7TC8 can ,e e;preed a6 7e/n


40/47

,8 $iller and @rr $odel6

=;panding on t-e +oumol model $iller and @rr conider a toc-atic

generating proce for periodic c-ange in ca- ,alance. A againt t-e

completely determinitic aumption of t-e +oumol model $iller and @rr

aume t-at t-e c-ange in ca- ,alance o#er a gi#en period are random in

i9e a well a direction a -own in ,elow figure. A t-e num,er of period

increae t-e ca- ,alance c-ange form a normal ditri,ution.

i#en t-i ,e-a#ior of ca- ,alance c-ange $iller and @rr model eek to

anwer t-e following /uetion6

0-en -ould tranfer ,e affected ,etween marketa,le ecuritie and

ca-

0-at -ould ,e t-e magnitude of t-ee tranfer

According to t-e $iller and @rr model upward c-ange in ca- ,alance are

allowed till t-e ca- ,alance reac-e an upper control limit 7J!8 a -own

,elow diagram. A t-i le#el i attained t-e ca- ,alance i reduced to a

return point 7"P8 ,y in#eting J!


41/47

ca-.

IO daily interet rate earned on marketa,le ecuritie

.dO #ariance of daily c-ange in t-e e;pected ca- ,alance

!!O t-e lower control limit

J!O t-e upper control limit

Illutration6 +eta !imited pro#ide t-e following information a,out it li/uidity.

T-e annual yield a#aila,le on marketa,le ecuritie i 12 percent. @n

a daily ,ai t-e yield I uing a 3'>< day year work out to6

12H3'>O>.>>>33 or O >.>333 percent

T-e fi;ed cot of effecting a marketa,le ecuritie tranaction , i

" 1'>>. T-e tandard de#iation of t-e c-ange in daily ca- ,alance i

". 5>>>. T-e management of +eta would like to maintain a minimum ca-

,alance of ". 5>>>>

i#en t-e a,o#e information t-e return point and t-e upper control limit for

+eta a per $iller and @rr model are a follow6

"PO 3V371'>>8 75>>>8W2H4X>.>>>33 5>>>> O *4*'2.5

J!O 3X "P 2X5>>>> O 1)4))(.5

T-e olution to t-i e;ample are -own grap-ically in t-e ,elow diagram. If t-e

ca- ,alance reac-e t-e upper control limit of ". 1)4))(.5 t-e financial

manager -ould ,uy marketa,le ecuritie for ".)**25. @n t-e ot-er -and if

t-e ca- ,alance touc-e t-e lower control limit of ".5>>>> t-e financial

manager -ould ell marketa,le ecuritie to retore t-e ca- ,alance to t-e

return point le#el of ". *4*'2.5. A long a t-e ca- ,alance lie ,etween

t-e upper control limit and t-e lower control limit t-at i ,etween ". 1)4))(.5

and ".5>>>> no ecuritie tranaction -ould ,e undertaken. Suc- a coure

of action will minimi9e t-e um of tranaction cot and interet foregone.



42/47



43/47

$I&DI&:S

2% .ollutech En!ineerin! invested 1s 25 lacs in M Contra wind and 1edeemed at

1s22,=4,5555

4% &o SI. investment is done as such, how so ever the CE', has invested

appro@imately 25 lacs in individual capacity

% -ill date they have not done any short term investment



44/47

1EC'MME&DA-I'&

2% DonJt loo+ at &AK/ 1s 25 &AK does not mean that the fund is cheaper than an

e@istin! fund with say 1s 455 &AK -herefore, never loo+ at &AK when you are

ma+in! an investment decision

4% Do systematic investment/ -he mar+et valuation today, despite the

recent correction, are still not cheap Also, there is ris+ of a possible

slowdown in the economy -herefore, avera!in! oneJs investment by

doin! SI. is a safer route to investin! in e?uity mar+ets

#ump)sum investment is advisable only at very low mar+et .E levels, when the

ris+ of mar+ets !oin! down further is low and the probability of appreciation is

hi!h

% DonJt !o for dividend option/ If the investment horion is more than 2 year

"which should ideally be the case when one invest in e?uity funds%, :rowth

option is !enerally preferable both from the point of view of wealth creation and

ta@ efficiency $or investment period less than 2 year for the short term needs

and usually invested in debt fund) dividend option would !enerally be better

% DonJt have too many or too new funds/ DonJt invest in too many or too

few funds >hile, there is no specific number of funds which you may

own, a fort folio of 24)27 funds should in most cases be '0

-oo lar!e portfolio will mean many similar funds, which could dilute your overall

returns -oo small a portfolio will mean that you are not coverin! the entire

breadth of the mar+et, besides e@posin! yourself to hi!h ris+ of a concentrated

portfolio

I have seen many portfolioJs which are stac+ed with infrastructure funds "the

latest mar+et fancy% Such concentrated portfolio s carry very hi!h ris+

% DonJt invest in &ew fund offers/ DonJt invest in &$'s, unless they

have somethin! very difficult to offer, which the e@istin! funds donJt



45/47

Since there is no portfolio or performance to loo+ it, it is difficult to access

whether the fund would add value to our portfolio or not Besides, most of the

&$'s launched today are the ris+y sector funds


46/47

Ca- t-e mot li/uid aet i of #ital importance to t-e daily operation of ,uine firm. Crucial

for t-e ol#ency of t-e ,uine it i referred to a t-e life ,lood of a ,uine firm.

A o-n $aynard eyne put fort- t-ere are t-ree poi,le moti#ate for -olding ca- i.e.

tranaction moti#e precautionary moti#e and peculati#e moti#e. 0-ile ca- er#e t-ee

function it i an idle reource w-ic- -a an opportunity cot. :ence it -ould ,e carefully

planned and controlled.

T-e principal met-od of -ort


47/47

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4% wwwinvestcarein

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%wwwn*fundcom

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