A portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds, cash and so on depending on the

investors income, budget and convenient time frame. Following are the two types of Portfolio: Market Portfolio Zero Investment Portfolio

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 individuals 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 laymans language, the art of managing an individuals investment is called as portfolio management.

 For example, Consider Mr. John has $100,000 and wants to invest his money in the financial market other than real estate investments. Here, the rational objective of the investor (Mr. John) is to earn a considerable rate of return with less possible risk.
NO. 1 Investor Portfolio Governmet bonds Bank fixed deposit Shares Mutual Fund Investment 25000 Percentage 25% Security High Returns Low

15000

15%

High

Average

3 4

35000 25000

35% 25%

Low Average

High Average

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 clients 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.

Types of Portfolio Management

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 clients 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.

Objectives of portfolio Management

Security of Principal Investment Investment safety or minimization of risks is one of the most important objectives of portfolio management. Portfolio management not only involves keeping the investment intact but also contributes towards the growth of its purchasing power over the period. The motive of a financial portfolio management is to ensure that the investment is absolutely safe. Other factors such as income, growth, etc., are considered only after the safety of investment is ensured. Consistency of Returns Portfolio management also ensures to provide the stability of returns by reinvesting the same earned returns in profitable and good portfolios. The portfolio helps to yield steady returns. The earned returns should compensate the opportunity cost of the funds invested. Capital Growth Portfolio management guarantees the growth of capital by reinvesting in growth securities or by the purchase of the growth securities. A portfolio shall appreciate in value, in order to safeguard the investor from any erosion in purchasing power due to inflation and other economic factors. A portfolio must consist of those investments, which tend to appreciate in real value after adjusting for inflation. Marketability Portfolio management ensures the flexibility to the investment portfolio. A portfolio consists of such investment, which can be marketed and traded. Suppose, if your portfolio contains too maany unlisted or inactive shares, then there would be problems to do trading like switching from one investment to another. It is always recommended to invest only in those shares and securities which are listed on major stock exchanges, and also, which are actively traded.2

 Liquidity Portfolio management is planned in such a way that it facilitates to take maximum advantage of various good opportunities upcoming in the market. The portfolio should always ensure that there are enough funds available at short notice to take care of the investors liquidity requirements.

Diversification of Portfolio Portfolio management is purposely designed to reduce the risk of loss of capital and/or income by investing in different types of securities available in a wide range of industries. The investors shall be aware of the fact that there is no such thing as a zero risk investment. More over relatively low risk investment give correspondingly a lower return to their financial portfolio.
Favourable Tax Status Portfolio management is planned in such a way to increase the effective yield an investor gets from his surplus invested funds. By minimizing the tax burden, yield can be effectively improved. A good portfolio should give a favourable tax shelter to the investors. The portfolio should be evaluated after considering income tax, capital gains tax, and other taxes.