Portfolio management introduction

Portfolio Management, Active, Passive, Discretionary Portfolio management services and Non-Discretionary Portfolio management services

OBJECTIVES OF PORTFOLIO MANAGEMENT:
Stable Current Return
Marketability
Tax Planning
Appreciation in the value of capital
Liquidity
Safety of the investment

1. Portfolio Management Introduction

2. Meaning of Portfolio A portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange-traded funds (ETFs). People generally believe that stocks, bonds, and cash comprise the core of a portfolio. A portfolio may contain a wide range of assets including real estate, art, and private investments .

3. 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 . It is an art of managing an individual’s investment .

4. Need for Portfolio Management Portfolio management presents the  best investment plan  to the individuals as per their income, budget, age and ability to undertake risks . Portfolio management  minimizes the risks  involved in investing and also increases the chance of making profits . Portfolio managers understand the client’s financial needs and suggest the best and unique investment policy for them with minimum risks involved . Portfolio management enables the portfolio managers to  provide customized investment solutions  to clients as per their needs and requirements.

5. Types of Portfolio Management Active Portfolio Management Passive Portfolio Management Discretionary Portfolio management services Non-Discretionary Portfolio management services

6. Active Portfolio Management T he portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals . It strives for superior returns but take greater risk and entails larger fees.

7. Passive Portfolio Management The portfolio manager deals with a fixed portfolio designed to match the current market scenario.

8. Discretionary Portfolio management services 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 .

9. Non-Discretionary Portfolio management services 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 .

10. OBJECTIVES OF PORTFOLIO MANAGEMENT Stable Current Return Marketability Tax Planning Appreciation in the value of capital Liquidity Safety of the investment

11. Stable Current Return Once investment safety is guaranteed, the portfolio should yield a steady current income . The current returns should at least match the opportunity cost of the funds of the investor.

12. Marketability A good portfolio consists of investment, which can be marketed without difficulty . If there are too many unlisted or inactive shares in your portfolio, you will face problems in encasing them, and switching from one investment to another. It is desirable to invest in companies listed on major stock exchanges , which are actively traded.

13. Tax Planning Since taxation is an important variable in total planning, a good portfolio should enable its owner to enjoy a favorable tax shelter . The portfolio should be developed considering not only income tax, but capital gains tax, and gift tax, as well. What a good portfolio aims at is tax planning, not tax evasion or tax avoidance.

14. Appreciation in the value of capital A good portfolio should appreciate in value in order to protect the investor from any erosion in purchasing power due to inflation. In other words, a balanced portfolio must consist of certain investments, which tend to appreciate in real value after adjusting for inflation.

15. Liquidity The portfolio should ensure that there are enough funds available at short notice to take care of the investor’s liquidity requirements.

16. Safety of the investment The first important objective of a portfolio, no matter who owns it, is to ensure that the investment is absolutely safe . Other considerations like income, growth, etc.,