Portfolio
Management
Portfolio management refers to the art and science of making
decisions about investment mix and policy, matching investments to
objectives, asset allocation for individuals and institutions, and
balancing risk against performance.
Evolution of Portfolio Management
Factor-Based Investing
Traditional Portfolio Emerging in the late 20th century,
Management
using specific factors (like value,
Initially focused on diversification growth, momentum) to construct
across stocks and bonds to spread risk. portfolios for better returns.
1 2 3 4
Modern Portfolio Theory (MPT) Quantitative Investing
Utilizing advanced mathematical
Introduced by Harry Markowitz in the models and algorithms to optimize
1950s, emphasizing optimal portfolio construction and risk
diversification to balance risk and management.
return.
Process of Portfolio Management
1 Identification of 2 Selection of the asset 3 Formulation of portfolio
objectives and mix strategy
constraints
Allocate investments across Develop a plan to achieve
Define financial goals and different asset classes, aim investment goals, decide
objectives, determine risk for diversification to spread on active or passive
tolerance levels, and risk, and balance between management approach,
identify legal, regulatory, risk and return based on and set guidelines for asset
and tax constraints. investor preferences. allocation and rebalancing.
4 Security analysis 5 Portfolio execution 6 Portfolio revision
Assess individual securities Implement the investment Regularly review portfolio
for inclusion in portfolio, decisions, purchase and performance and market
conduct fundamental sell securities according to conditions, rebalance asset
analysis, and perform the asset mix and strategy, allocation as needed, and
technical analysis. and ensure proper adjust holdings based on
diversification and changes in investment
adherence to risk outlook or risk profile.
management guidelines.
7 Performance evaluation
Measure portfolio returns against benchmarks and goals, assess risk-adjusted performance metrics, and
identify strengths and weaknesses in the portfolio strategy.
Objectives of Portfolio Management
Security of Investment Capital Growth Liquidity
Provides Safety, Minimizes Risk Appreciation of investment in a Flexibility, Quick access to cash
portfolio. Investors and their
advisors are constantly seeking
growth stock in the right industry
and bought at the right time.
Objectives of Portfolio Management (continued)
Tax Efficiency Stability Diversification
Minimizes tax liability for the Provides consistent returns and Reduces Risk, Provides Flexibility
investor. minimizes volatility.
Objectives of Portfolio
Management (continued)
Customized Strategy
Tailored to individual goals and asset allocation.
Role of Portfolio Manager
Risk Returns Safety Liquidity
Risk refers to the loss of It depends upon the Investments with low Flexibility and quick
principle amount of an salary of client and how risk, such as government access to cash are
investment. The much the client taking bonds and securities, important objectives for
investment maturity risk. It involves buying provide safety for the portfolio management.
period is longer in this capacity of investment in investor.
case investor will take market.
large risk.
Revenue by Quarter
High Risk Investments Equity Shares, Mutual Funds
Low Risk Investments Government Bonds, Securities
Capital growth refers to appreciation of investment in a portfolio.
Investors and their advisors are constantly seeking growth stock in the
right industry and bought at the right time.
Factors Affecting Portfolio Management
Risk
Risk refers to the loss of principle amount of an investment. The investment maturity
period is longer in this case investor will take large risk.
Returns
It depends upon the salary of client and how much the client taking risk. It involves
buying capacity of investment in market.
Safety
Investments with low risk, such as government bonds and securities, provide safety for
the investor.
Liquidity
Flexibility and quick access to cash are important objectives for portfolio management.
Conclusion
In summary, portfolio management is a complex and multifaceted discipline that requires careful consideration of
investment objectives, risk tolerance, asset allocation, and performance evaluation. By understanding the evolution
of portfolio management, the key processes involved, and the various factors that influence investment decisions,
investors and portfolio managers can make more informed choices to achieve their financial goals.