INTRODUCTION

Portfolio management involves maintaining a proper combination of securities which comprise the investors portfolio in a manner that they give maximum return with minimum risk. This requires framing of proper investment policy. Investment policy means formation of guidelines for allocation of available funds among the various types of securities including variation in such proportion under changing environment. This requires proper mix between different securities in a manner that it can maximize the return with minimum risk to the investor. Broadly speaking investors can be divided into two groups. Individual investors are those individuals who save money and invest in the market in order to get return over it. They are not much educated, expert and they do not have time to carry out detailed study. On the other hand institutional investors are companies, mutual funds, banks and insurance companies who have surplus funds which need to be invested profitably. These investors have time and resources to carry out detailed research for the purpose of investing. They can employ financial experts in order to take investment decisions. They have large investment portfolio. The management of large investment portfolio is a unique and important task for portfolio managers and many corporate bodies. Stock exchange operations are peculiar in nature and most of the Investors feel insecure in managing their investment on the stock market because it is difficult for an individual to identify companies which have growth prospects for investment. Further due to volatile nature of the markets, its require constant reshuffling of portfolios to capitalized on the growth opportunities. Even after identifying the growth oriented companies and their securities, the trading practices are also complicated, making it a difficult task for investors to trade in all the exchange and follow up on post trading formalities. That is why professional investment advice through portfolio management service can help the investors to make an intelligent and informed choice between alternative investments opportunities without the worry of loosing their invested money.

MEANING OF PORTFOLIO MANAGEMENT

Portfolio management in common parlance refers to the selection of securities and their continuous shifting in the portfolio to optimize returns to suit the objectives of an investor. In India, as well as in a number of western countries, portfolio management service has assumed the role of a specialized service now a days and a number of professional merchant bankers compete aggressively to provide the best to high networth clients, who have little time to manage their investments. The idea is catching on with the boom in the capital market and an increasing number of people are inclined to make profits out of their hard-earned savings.

Portfolio management service is one of the merchant banking activities recognized by Securities and Exchange Board of India(SEBI). The service can be rendered either by merchant bankers or portfolio managers or discretionary portfolio manager as define in clause (e) and (f) of Rule 2 of Securities and Exchang Board of India(Portfolio Managers)Rules, 1993 and their functioning are guided by the SEBI.

WHAT IS PORTFOLIO MANAGEMENT SERVICE?

Portfolio Management Services account is an investment portfolio in Stocks, Debt and fixed income products managed by a professional money manager, that can potentially be tailored to meet specific investment objectives. When investor invest in PMS, he own individual securities unlike a mutual fund investor, who owns units of the entire fund. He have the freedom and flexibility to tailor his portfolio to address personal preferences and financial goals. Although portfolio managers may oversee hundreds of portfolios, Individual investors account may be unique. As per SEBI guidelines, only those entities who are registered with SEBI for providing PMS services can offer PMS to clients. There is no separate certification required for selling any PMS product. So this is case where miss-selling can happen. As per the SEBI guidelines, the minimum investment required to open a PMS account is Rs.5Lacs. However, different providers have different minimum balance requirements for different products. For eg Birla AMC PMS is having minimum amount requirement of Rs25lacs for a product. Similarly HSBC AMC is having minimum requirement of 50lacs for their PMS and Reliance is having minimum requirement of Rs.1Crore. In India Portfolio Management Services are also provided by equity broking firms & wealth management services.

PHASES OF PORTFOLIO MANAGEMENT

Portfolio Management comprises of many activities that are targeted at optimizing the investment of clients funds. There are basically five phases in the portfolio management and each of these phases makes up an integral part of the Portfolio Management and the success of it depends on the effectiveness in implementing these phases. Security Analysis:

There are many types of securities available in the market including equity shares, preference shares, debentures and bonds. Apart from it, there are many new securities that are issued by companies such as Convertible debentures, Deep Discount bonds, floating rate bonds, flexi bonds, zero coupon bonds, global depository receipts, etc. It forms the initial phase of the portfolio management process and involves the evaluation and analysis of risk return features of individual securities. The basic approach for investing in securities is to sell the overpriced securities and purchase underpriced securities. The security analysis comprises of Fundamental Analysis and technical Analysis. Portfolio Analysis: A portfolio refers to a group of securities that are kept together as an investment. Investors make investment in various securities to diversify the investment to make it risk averse. A large number of portfolios can be created by using the securities from desired set of securities obtained from initial phase of security analysis.

By selecting the different sets of securities and varying the amount of investments in each security, various portfolios are designed. After identifying the range of possible portfolios, the risk-return characteristics are measured and expressed quantitatively. It involves the mathematically calculation of return and risk of each portfolio. Portfolio Selection During this phase, portfolio is selected on the basis of input from previous phase Portfolio Analysis. The main target of the portfolio selection is to build a portfolio

that offer highest returns at a given risk. 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. The optimal portfolio is determined in an objective and disciplined way by using the analytical tools and conceptual framework provided by Markowitzs portfolio theory. Portfolio Revision After selecting the optimal portfolio, investor is required to monitor it constantly to ensure that the portfolio remains optimal with passage of time. Due to dynamic changes in the economy and financial markets, the attractive securities may cease to provide profitable returns. These market changes result in new securities that promises high returns at low risks. In such conditions, investor needs to do portfolio revision by buying new securities and selling the existing securities. As a result of portfolio revision, the mix and proportion of securities in the portfolio changes. Portfolio Evaluation This phase involves the regular analysis and assessment of portfolio performances in terms of risk and returns over a period of time. During this phase, the returns are measured quantitatively along with risk born over a period of time by a portfolio. The performance of the portfolio is compared with the objective norms. Moreover, this procedure assists in identifying the weaknesses in the investment processes.