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Portfolio Management
Portfolio Management
Decision making regarding a holistic investment process is done with the right mix of investments and policies. The ability to match the investments with the objectives, allocation of assets, keeping in mind individuals and institutions along with the appropriate risk balance with performance - all these aspects come into the forte of portfolio management. Portfolio management focuses on the selection of the right opportunity. Moreover, it looks for possible ways to deter from possible crisis or threat. Besides, portfolio management also examines the possible strengths and weaknesses in finance. A portfolio manager of an organisation needs to identify these aspects in order to make a thorough portfolio management report for the top management.
There are two kinds of portfolio management, viz. active portfolio management and passive portfolio management. In the active portfolio management, the portfolio manager usually works within a team to actively manage a portfolio by taking the necessary financial decisions regarding the individual holdings in the fund's portfolio. Whereas, passive portfolio management involves the tracking of the market index, commonly known as indexing. A portfolio manager usually manages close-ended funds.
Investment portfolio management
Management of various investments undertaken by institutions or organizations is the basic concept behind investment portfolio management. Here, the portfolio manager takes care of the shares, bonds, other securities and assets such as property etc., as per the investment goals of the individual or the company looking for benefiting from these investments. Portfolio management of institutional investors is different from that of private investors due to the nature of the investments.
Portfolio managers also undertake asset management and investment portfolio management of schemes like mutual funds or ETFs. Investment portfolio management of private investors can also be called wealth management.
Investment portfolio management or investment management includes the study of:
- Financial statement analysis
- Asset selection
- Stock selection,
- Plan implementation
- Monitoring of investments
Key steps in Investment Portfolio management:
There are complex steps involved in understanding investment management. They are mentioned below:
- Investment objectives with their limitations ought to be specified: In portfolio management, the main objectives of the investment need to be outlined, such as capital appreciation, safety of principal and incurring income. All this needs to be conducted in view of maintaining the minimal risk possible within the limitations arising out of liquidity, timeframe, tax etc.
- Balanced Asset mix: In portfolio management, the proportion of assets within the portfolio like equity shares, share of equity and bonds in mutual funds, needs to be balanced. The portfolio manager balances this asset mix based on the risk aversion of the investor.
- Outlining portfolio strategy: In portfolio management, the portfolio manager decides about the level of risk to be taken based on the investor's choice. This is dependent upon actively taking risk adjusted returns or simply holding a diversified portfolio at a predetermined risk.
- Securities selection: In portfolio management, credit ratings of bonds, liquidity, tax benefits, maturity and yield to maturity are all considered for selecting bonds whereas, in stocks, the portfolio manager undertakes a fundamental and technical analysis of the stocks.
- Execution of the Portfolio: Whether to buy or sell is determined by the investors' risk aversion level.
- Revision of the Portfolio: In portfolio management, rebalancing the portfolio is often undertaken based upon the market fluctuations.
- Evaluation of Performance: Performance of the assets is often undertaken under portfolio management from time to time as investors change their risk aversion and realize their portfolio returns.
Thus, a portfolio manager needs to be thoroughly abreast with the market conditions in order to guide their clients (investors) about the returns and level of risk to be taken.
