Portfolio management

Portfolio Management - Nature and Types

1. PORTFOLIO MANAGEMENT
1
Dr. R. PREMA
Associate Professor in
Commerce CA
Investment
Management

2. APortfolioreferstoacollectionofinvestmenttoolssuchas
stocks,shares,mutualfunds,bonds,cashandsoon
depending on the investor’s income, budget and convenient
time frame.

3. Portfoliomanagementistheart ofselectingtheright
investment policy for the individuals in terms of minimum risk
and maximum return.
It 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.
In plain terms, it is managing money of an individual under
expert guidance of portfolio managers.

4. Portfolio
decisions
managementistheart andscienceofmaking
aboutinvestmentmixand policy,matching
investmentstoobjectives,assetallocationforindividualsand
institutions,and balancingriskagainstperformance.
Portfoliomanagementisallabout determining strengths,
weaknesses, opportunities and threats in the choice of debt vs.
equity, domestic vs. international, growth vs. safety, and much
other trade-offs encountered in the attempt to maximize return
at a given appetite for risk.

7. Higherreturnonprojectinvestments.
Lowerorganizationalrisk.
Balancedprojectportfolioworkload.
Increasedprojectthroughput.
Shorterprojectcycletimes.
Greaterconfidenceofmeetingcustomercommitments.

8. Portfoliomanagementpresentsthebestinvestmentplan1.
to the individuals as per their income, budget, age and
ability to undertake risks.
Portfolio
investing
managementminimizes therisks involvedin2.
andalsoincreases thechance ofmakingprofits.
Portfoliomanagementenablestheportfoliomanagersto3.
provide customized investment solutions to clients as per
their needs and requirements.

9. TYPES OF PORTFOLIO
MANAGEMENT
Discretionary NonDiscretionary Advisory

10. Discretionary Portfolio management:Anindividual
authorizesaportfoliomanagertotakecareofhisfinancial
needsonhisbehalf.Theindividualissuesmoneytothe
portfolio manager who in turn takes care of all his investment
needs, paper work, etc
Non-Discretionary Portfolio management: Theportfolio
manager suggests investmentideas.Choiceandtimingsof
investmentdependswithinvestor.However,executionof
tradeis done by theportfoliomanager.
Advisory Portfolio Management:Portfoliomanageronly
suggests investment ideas. Decision taking and execution is
done by investor himself.

11. 1.Effective investment planningconsideringfollowing
factor:-
•Fiscal,financialandmonetarypolicies
•Industrial and
industry
economicenvironmentanditsimpacton
•Prospectintermsofprospective technologicalchanges,
competition in the market, capacity utilization with industry
and demand prospects

12. 2.
•
Constant review of Investment:-
To assess the quality of the management of the companies in
which investment has been made or proposed to be made
•Toassessthefinancialandtrendanalysisof companies
financials to identify the optimum capital structure and better
performance for the purpose of withholding the investment
from poor companies.
• To analysis the security market and its trend in continuous
basis to arrive at a conclusion as to whether the securities
already in possession should be disinvested and new securities
be purchased.

15. Commit to improving the project system
Use project management on all projects
Sponsor individual projects
Create a project steering process
Align horizontally
Apply the new accountability
Optimize technical processes

16. The return of a portfolio
the returns of individual
is equal to the weighted average of
assets (or securities) in the portfolio
with weights being equal to the proportion of investment
value in each asset.
Expected return:
whereisthereturn onthe portfolio,isthereturn on
asseti andistheweightingof component asset(thatis,
theproportion of asset "i" inthe portfolio).

17. 1
n
(
1
Portfolio value = Rs 2,00,000 + Rs 5,00,000 = Rs 7,00,000
r
A = 14%, r
B = 6%,
w
A = weight of security A = Rs 2 lacs / Rs 7 lacs = 28.6%
w
B = weight of security B = Rs 5 lacs / Rs 7 lacs=71.4%
Solution:-
ER
p
w
i
ER
i
) (.286 4%) (.714 6%)
i
4.004% 4.284% 8.288%

18. 10.50
E
x
p
ec
t
ed
R
e
t
ur
n
%
B
Assume ER
A = 8% and ER
B = 10%
10.00
ER = 10%
9.50
9.00
8.50
8.00
7.50 ERA=8%
7.00
0 0.2 0.4 0.6 0.8 1.0 1.2
Portfolio Weight

19. E
x
p
ec
t
ed
R
e
t
ur
n
%
B
Aportfoliomanagercanselecttherelativeweightsofthetwoassets
intheportfoliotogetadesiredreturnbetween8%(100%investedin
A)and10%(100%investedinB)
10.50
10.00
ER = 10%
9.50
9.00
8.50
8.00
7.50 ERA=8%
7.00
0 0.2 0.4 0.6 0.8 1.0 1.2
Portfolio Weight

20. E
x
p
ec
t
ed
R
e
t
ur
n
%
10.50
10.00 ERB= 10%
9.50
The potential returns of
9.00 the portfolio are
bounded by the highest
8.50 and lowest returns of the
individual assets that
8.00 make up the portfolio.
7.50
ERA=8%
7.00
0 0.2 0.4 0.6 0.8 1.0 1.2
Portfolio Weight

21. (
ER w
AER w
BER
B(1.0)(8%) 0)(10%)8%
p A
7.00
E
x
p
ec
t
ed
R
e
t
ur
n
%
ER
p
w
A
ER
A
w
B
ER
B
(1.0)(8%) 0)(10%) 8
10.50
10.00 ERB= 10%
9.50
9.00
8.50 The expected return on the portfolio if 100% is invested in
8.00 Asset A is 8%.
7.50
ERA=8%
0 0.2 0.4 0.6 0.8 1.0 1.2
Portfolio Weight

22. 1(
7.00
portfolioif100%isinvestedin
E
x
p
ec
t
ed
R
e
t
ur
n
%
portfolioif100%isinvestedi
10.50
10.00 ERB= 10%
9.50
9.00
8.50
8.00
ER
p w
A ER
A w
B ER
B ( 0 )( 8 %) 1 .0 )(10 %) 0 %
7.50
ERA=8% The expected return on the
Asset B is 10%.
0 0.2 0.4 0.6 0.8 1.0 1.2
Portfolio Weight

23. (
9.00
E
x
p
ec
t
ed
R
e
t
ur
n
%
10.50 The expected return on the portfolio if 50% is
10.00 invested in Asset A and ER
B= 10%
50% in B is 9%.
9.50
ER
p w
A ER
A w
B ER
B
8.50
( 0 .5 )( 8 %) 0 .5 )(10 %)
8.00 4 % 5 % 9 %
7.50
ERA=8%
7.00
0 0.2 0.4 0.6 0.8 1.0 1.2
Portfolio Weight

24. returnsonthestockAruns from
Probability The range of total possible
-30% to more than +40%. If the
required return on the stock is
Outcomes that produce harm 10%, then those outcomes less
than 10% represent risk to the
investor.
-30% -20% -10% 0% 10% 20% 30% 40%
Possible Returns on the Stock

25. Any
Questi
on