Portfolio Management

Portfolio management is the art and science of selecting and overseeing a group of investments that meet the long-term financial objectives and risk tolerance of a client, a company, or an institution. It refers to managing the money of an individual under the expert guidance of portfolio managers.

Objectives of Portfolio Management

The fundamental objective of portfolio is to help select the best investment options as per one’s income, age, time horizon, and risk appetite.

  • Capital appreciation
  • Maximizing returns on investment
  • To improve the overall proficiency of the portfolio
  • Risk optimization
  • Allocating resources optimally
  • Ensuring flexibility of portfolio
  • Protecting earnings against market risks

What is the need for Portfolio Management?

  • It presents the best investment plan to the individuals as per their income, budget, age, and ability to undertake risks.
  • It minimizes the risks involved in investing
  • It increases the chance of making profits.
  • Portfolio managers understand the client’s financial needs and suggest the best and unique investment policy for them with minimum risks involved.
  • Portfolio enables managers to provide customized investment solutions to clients as per their needs and requirements.

Types of Portfolio Management

  • Active Portfolio: As the name suggests, in an active management service, the portfolio managers are actively involved in buying and selling securities to ensure maximum profits to individuals.
  • Passive Portfolio: In passive portfolio, the portfolio manager deals with a fixed portfolio designed to match the current market scenario.
  • Discretionary Portfolio management services: In Discretionary management services, an individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual issues money to the portfolio manager who in turn takes care of all his investment needs, paperwork, documentation, filing, and so on. In discretionary portfolio, the portfolio manager has full rights to take decisions on his client’s behalf.
  • Non-Discretionary Portfolio management services: In non-discretionary management services, the portfolio manager can merely advise the client what is good and bad for him but the client reserves full right to take his own decisions.

Processes of Portfolio Management

Steps to process the Portfolio:

  1. Identification of objectives

For a capable investment portfolio, investors need to identify suitable objectives which can be either stable returns or capital appreciation.

  1. Estimating the capital market

Expected returns and associated risks are analyzed to take the necessary steps.

  1. Decisions about asset allocation

To generate earnings at minimal risk, sound decisions must be made about the suitable ratio or asset combination.

  1. Formulating suitable portfolio strategies

Strategies must be developed after factoring in investment horizon and risk exposure.

  1. Selecting of profitable investment and securities

The profitability of assets is analyzed by factoring in their fundamentals, credibility, liquidity, etc.

  1. Implementing portfolio

The planned portfolio is put to action by investing in profitable investment avenues.

  1. Evaluating and revising the portfolio

A portfolio is evaluated and revised regularly to evaluate its efficiency.

  1. Rebalancing the composition of the portfolio

Portfolio’s composition is rebalanced frequently to maximize earnings.

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