Portfolio Management

Portfolio Management

What is a Portfolio?
A portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds, cash and so on depending on the investor’s income, budget and convenient time frame. Following are the two types of Portfolio:

  1. Market Portfolio
  2. Zero Investment Portfolio
What is Portfolio Management?
The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management.
Portfolio management refers to managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time frame.
Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers.
In a layman’s language, the art of managing an individual’s investment is called as portfolio management.

Types

  1. Active Portfolio Management:
  2. As the name suggests, in an active portfolio management service, the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals.
  3. Passive Portfolio Management:
  4. In a passive portfolio management, the portfolio manager deals with a fixed portfolio designed to match the current market scenario.
  5. Discretionary Portfolio management services:
  6. In Discretionary portfolio 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, paper work, documentation, filing and so on. In discretionary portfolio management, the portfolio manager has full rights to take decisions on his client’s behalf.
  7. Non-Discretionary Portfolio management services:
  8. In non discretionary portfolio 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.

Objectives

  • It is aptly put as the customization of the investment needs catered by the portfolio managers as per the defined requirements.
  • Portfolio management helps in providing the best options for investments to individuals as per the defined criterion of their income, budget, age, holding period and risk-taking capacity.
  • This is mainly done by the Portfolio managers who understand the investors’ financial needs and accordingly suggest the investment policy that would have maximum returns with minimum risks involved. Aptly put, it is risk reduction through diversification.
  • This is the method preferred by those who believe in having liquidity in investments so that one can get the money back when needed.
  • Some of the portfolio management schemes are also done for tax saving purposes.
  • It helps the investors maintain the purchasing power, that are used by the managers to keep a track of the developments in the portfolio.
  • The fund manager takes decisions on the basis of the hardcore research that is company specific as well as market-related done by the team of the portfolio managers.

Process

  1. Security Analysis:
  2. It is the first stage of portfolio creation process, which involves assessing the risk and return factors of individual securities, along with their correlation.
  3. Portfolio Analysis:
  4. After determining the securities for investment and the risk involved, a number of portfolios can be created out of them, which are called as feasible portfolios.
  5. Portfolio Selection:
  6. Out of all the feasible portfolios, the optimal portfolio, that matches the risk appetite, is selected.
  7. Portfolio Revision:
  8. Once the optimal portfolio is selected, the portfolio manager, keeps a close watch on the portfolio, to make sure that it remains optimal in the coming time, in order to earn good returns.
  9. Portfolio Evaluation:
  10. In this phase, the performance of the portfolio is assessed over the stipulated period, concerning the quantitative measurement of the return obtained and risk involved in the portfolio, for the whole term of the investment.
    The portfolio management services are provided by the financial companies, banks, hedge funds and money managers.

FAQ's

A portfolio manager is a body corporate who, pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise), the management or administration of a portfolio of securities or the funds of the client.

The discretionary portfolio manager individually and independently manages the funds of each client in accordance with the needs of the client. The non-discretionary portfolio manager manages the funds in accordance with the directions of the client.

The portfolio manager is required to have a minimum net worth of Rs. 2 crores. 5.

Yes. Every portfolio manager is required to pay Rs. 10 lakhs as registration fees at the time of grant of certificate of registration by SEBI.

The certificate of registration remains valid for three years. The portfolio manager has to apply for renewal of its registration certificate to SEBI, 3 months before the expiry of the validity of the certificate, if it wishes to continue as a registered portfolio manager.

The portfolio manager is required to pay Rs. 5 lakhs as renewal fees to SEBI.

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