Portfolio Mangement Process and Feature

Portfolio Mangement

1. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Unit-IV: Portfolio Management -Dr. Ranpreet Kaur

2. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education PORTFOLIO- MEANING 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. A portfolio can be defined as different investments tools namely stocks, shares, mutual funds, bonds, cash all combined together depending specifically on the investor’s income, budget, risk appetite and the holding period.  “ A Portfolio is the basket of Securities/ Investment alternatives to achieve investment objectives”

3. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education 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 is defined as the art and science of making decisions about the investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance.  “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.”

4. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Charteristics and Objectives of Portfolio Customization Providing best alternate to suit individual criteria Risk management (Through diversification) Capital Appreciation(Long-term performance) Current/Regular Income (target return -Stability of income) Liquidity Security(Safety ) Tax Planning Time value of Money(Capital Preservation / maintaining purchasing power) To achieve Investment Objective Ease of management

5. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Portfolio Management Process

6. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Investment policy and Asset Allocation Investment policy - Investment policy is the first stage of the investment process. It determines the following aspects of the investor: his initial step determines the investor’s objectives and the amount of his investable wealth This step concludes with the asset allocation decision: Determination of Investable Wealth Determination of Portfolio Objectives Identification of Potential Investment Assets Consideration of Attributes of Investment Assets Allocation of Wealth to Asset Categories.

7. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Conti… While setting the investment policy, the investor also selects the portfolio management style (active vs. passive management).

8. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Asset Allocation The initial step determines the investor’s objectives and the amount of his investable wealth. Since there is a positive relationship between risk and return, the investment objectives should be stated in terms of both risk and return. Identification of the potential categories of financial assets for consideration in the portfolio that the investor is going to construct. Asset allocation involves dividing an investment portfolio among different asset categories, such as stocks, bonds and cash. ***The asset allocation that works best for an investor at any given point in his life depends largely on his time horizon and his ability to tolerate risk

9. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Systematic Investment Plan Concept- Systematic Investment Plan or commonly known as SIP is one of the important concept of investing. The concept of Systematic Investment plan is not new. Recurring deposits, Insurance Premium payments are also a form of Systematic Investment Plan. With respect to Mutual Funds, it is a regular/recurring investment in Mutual Fund Schemes. In general terms, Systematic Investment Plan means certain amount invested in a mutual fund scheme every month/every quarter. An SIP means commitment of investing a fixed amount every month. For exam­ple – Mr X invest Rs 1000 every month in ABC Mutual Fund for a period of 15 years.

10. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Bond Management Strategies Buy and Hold Strategy Indexing Strategy Immunization-A hybrid Strategy (Duration of bond matched with duration of the liabilities) Cash Flow Matching (Dedication-buy matching cash flows on a multi period basis-series of zero coupon bond that match the stream of future obligations) Forecasting Interest Rate Change

11. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education Equity Portfolio Management Strategies Passive Strategy- Buy and Hold Strategy Indexing Portfolio Construction Strategy Methods-Index Mutual Fund or Exchange traded funds Active Strategy- Fundamental Approach Market Timing Sector rotation Security Selection Use of Specialized Investment Concept ( Growth Stocks, Value Stocks, Technological Stocks, Cyclical Stocks) Technical Approach: Contrarian Strategy (majority investors bearish –Buy vice versa) Momentum Strategy (Trends will continue)

12. Investment Analysis and Portfolio Management Unit-IV: Portfolio Management Centre for Distance and O nline Education P reparation of Investment plans for Individuals in different stages of life cycles and different situations Risk Return Objectives Wealth Tenure Market timing Unique circumstances