Meaning of portfolio management - Security Analysis and Investment Management

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.

Meaning of Security Analysis and Portfolio Management

Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk. A portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds, and cash and so on depending on the investor’s income, budget and convenient time frame.

Following are the two types of Portfolio:

  • Market Portfolio
  • Zero Investment Portfolio

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.

In a layman’s language, the art of managing an individual’s investment is called as portfolio management.

Need for Portfolio Management

Portfolio management presents thebest investment planto the individuals as per their income, budget, age and ability to undertake risks. Portfolio managementminimizes the risksinvolved 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 toprovide customized investment solutionsto clients as per their needs and requirements.

Types of Portfolio Management

Portfolio Management is further of the following types:

  • Active Portfolio Management:As the name suggests, in an active portfolio management service, the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals.
  • Passive Portfolio Management:In a passive portfolio management, the portfolio manager deals with a fixed portfolio designed to match the current market scenario.
  • 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.
  • 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.

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