Portfolio Management

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Portfolio Management
Investment Decision

What is Portfolio Management?
When it comes to investing you have many options like investing in bonds, shares, mutual funds, debentures. So, where to invest??
This is what portfolio management does for you. 

Portfolio Management can be defined as different investments tools namely stocks, shares, mutual funds, bonds, cash all combined together depending specifically on the investor’s income, budget, risk appetite and the holding period. It is formed in such a way that it stabilizes the risk of nonperformance of different pools of investments.

It is the detailed SWOT analysis (strengths, weaknesses, opportunities, and threats) of an investment, which could be in the form of debt/equity, domestic/international, to maximize the return at a given level for risk.

Types Of Portfolio Management
  • Active Portfolio Management: It involves hardcore research before investing. It involves a deep analysis to determine the cost of stock concerning its potential & if the stock is undervalued it is beneficial to buy that stock.
  • Passive Portfolio Management: It involves only tracking of index & believes that the price of stocks reflects the fundamentals of a company. It is profitable through stability while active portfolio investment can give you instant results.
  • Discretionary Portfolio Management: It is done by taking into account the investor's goals & time frame, the best strategy is chosen. The manager takes care of the investor's financial needs on his behalf.
  • Non-Discretionary Portfolio Management: It is simply a financial counsellor by clearly outlining the pros & cons of the investment. It is up to the investor to choose the path of investment
Objectives of Portfolio Management
  • To get a customized investment plan as per defined criteria.
  • To get the best option as per defined criteria of income, budget, holding period, risk etc
  • To reduce risk through diversification
  • To maximize the returns
  • To save the tax
  • To maintain purchasing power
Let's learn it with an example;
Say the investor has Rs. 5,00,000 to start. We, as the manager has to distribute it across different investment options as per their risk-taking capacity & returns on investment. You have the following options:
Depending on the security and the return, the bifurcation is done as follows:

To be stock specific, the bifurcation is done as follows:


Hence, depending on the requirements of the investors, the fund manager takes appropriate decisions and allocates the funds.

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