PORTFOLIO MANAGEMENT

Portfolio is a combination of securities such as stocks, bonds and money market instruments.

The process of blending together the broad asset classes to obtain optimum return with minimum risk is called portfolio construction.

Two approaches of portfolio

Traditional approach – investor’s needs in terms of income and capital appreciation (According to that appropriate securities are selected).

Modern Approach (Markowitz efficient frontier approach) – Maximize expected returns for a given level of risk.

It views portfolio construction in terms of the expected return and risk associated with obtaining the expected return.

Traditional approach

• Determining the objective of the portfolio.

• Selection of securities to be included in the portfolio.

Analysis of constraints

Determination of objectives

Assessment of risk and return analysis

Diversification

Bond and common stock

Common stockBond

1. Selection of industries2. Selection of companies in the industry3. Determining the size of participation

TRADITIONAL

APPROACH

Selection of portfolio

Portfolio Revision

Performance evaluation

PORTFOLIO MANAGEMENT

What is Portfolio

1. Portfolio is a group of financial assets such as shares, stocks, bonds, debt instruments, mutual funds, cash equivalents, etc. A portfolio is planned to stabilize the risk of non-performance of various pools of investment.

• Portfolio refers to invest in a group of securities rather to invest in a single security.

• “Don’t Put all your eggs in one basket”

• Portfolio help in reducing risk without sacrificing return.

What is Portfolio

• Management is the organization and coordination of the activities of an enterprise in accordance with well-defined policies and in achievement of its pre-defined objectives.

What is Management

• Portfolio Management is the process of creation and maintenance of investment portfolio.

• Portfolio management is a complex process which tries to make investment activity more rewarding and less risky.

Portfolio Management

Portfolio management is a process of many activities that aimed to optimizing the investment. Five phases can be identified in the process:

1. Security Analysis.2. Portfolio Analysis.3. Portfolio Selection.4. Portfolio revision.5. Portfolio evaluation.

Each phase is essential and the success of each phase is depend on the efficiency in carrying out each phase.

Phases of Portfolio Management

• Security analysis is the initial phase of the portfolio management process.

• The basic approach for investing in securities is to sell the overpriced securities and purchase under priced securities

• The security analysis comprises of Fundamental Analysis and technical Analysis.

Security Analysis

• A large number of portfolios can be created by using the securities from desired set of securities obtained from initial phase of security analysis.

• . It involves the mathematically calculation of return and risk of each portfolio.

Portfolio Analysis

• The portfolios that yield good returns at a level of risk are called as efficient portfolios.

• The set of efficient portfolios is formed and from this set of efficient portfolios, the optimal portfolio is chosen for investment.

Portfolio Selection

• Due to dynamic changes in the economy and financial markets, the attractive securities may cease to provide profitable returns.

Portfolio Revision

• This phase involves the regular analysis and assessment of portfolio performances in terms of risk and returns over a period of time.

Portfolio Evaluation

• SECURITY ANALYSIS: Classification of securities( shares, debentures, bonds etc..), examining the risk-return characteristics of individual securities, fundamental and technical analysis.

• PORTFOLIO ANALYSIS: Identification of range of possible portfolio from a different set and ascertaining risk and return.

• PORTFOLIO SELECTION: Efficient portfolio is identified and optimal portfolio is selected.

• PORTFOLIO REVISION: Addition or deletion of securities due to change in availability of additional funds, change in risk, need for cash etc.

• PORTFOLIO EVALUATION : Comparison of objective norms with relative performance. Provides feedback mechanism for improving the entire portfolio management process.

Conclusion