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Portfolio Revision

Portfolio Revision

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Published by rajkumardiscover

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Published by: rajkumardiscover on Aug 24, 2012
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06/11/2014

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WHAT IS A PORTFOLIO?
A combination of various investment products like bonds, shares, securities, mutual funds andso on is called a portfolio.In the current scenario, individuals hire well trained and experienced portfolio managers whoas per the client’s risk taking capability combine various investment products and create acustomized portfolio for guaranteed returns in the long run.It is essential for every individual to save some part of his/her income and put into somethingwhich would benefit him in the future. A combination of various financial products where anindividual invests his money is called a portfolio.The portfolio, which is once selected, has to be continuously reviewed over a period of timeand if necessary revised depending on the objectives of investor. Thus, portfolio revision meanschanging the asset allocation of a portfolio.
WHAT IS PORTFOLIO REVISION?
The art of changing the mix of securities in a portfolio is called as portfolio revision
.
The process of addition of more assets in an existing portfolio or changing the ratio of fundsinvested is called as portfolio revision.The sale and purchase of assets in an existing portfolio over a certain period of time tomaximize returns and minimize risk is called as Portfolio revision.Portfolio revision involves changing the existing mix of securities:
Changing the securities currently included in the portfolio
Altering the proportion of funds invested in the securities.
 New securities may be added or some of them may be removed from the portfolio.It is process of adjusting the existing portf 
 
olio in accordance with the changes in financialmarket and investor’s position so as to ensure maximum return from the portfolio with minimum risk.
 
NEED FOR PORTFOLIO REVISION
An individual at certain point of time
might feel the need to invest more
. The need for  portfolio revision arises when an individual has some additional money to invest.
Change in investment goal 
also gives rise to revision in portfolio. Depending on thecash flow, an individual can modify his financial goal, eventually giving rise to changesin the portfolio i.e. portfolio revision.
Financial market is subject to risks and uncertainty. An individual might sell off someof his assets owing to fluctuations in the financial market.
PORTFOLIO REVISION STRATEGIES
There are two types of Portfolio Revision Strategies. The choice depends on the investor’sobjectives, skill, resources and time.
1.Active Revision Strategy
Active Revision Strategy involves
frequent changes
in an existing portfolio over acertain period of time for maximum returns and minimum risks.Active Revision Strategy helps a portfolio manager to sell and purchase securities on aregular basis for portfolio revision.It is based on analysis of technical factors and fundamental factors.Frequency of trading is much higher resulting in higher transaction cost.It is holding securities based on the forecast about the future. The portfolio managersvary their cash position or beta of the equity portion of the portfolio based on themarket forecast.
For e.g.-
IT or FMCG industry stocks may be given more weights than their respectiveweights in the NSE-50.
 
2.Passive Revision Strategy
Passive Revision Strategy involves rare changes in portfolio only under certain predetermined rules. These predefined rules are known as formula plans.According to passive revision strategy a portfolio manager can bring changes in the portfolio as per the formula plans only.It involves only minor & infrequent adjustments to the portfolio over time. Under this,adjustment to portfolio is carried according to predetermined rules & proceduresdesignated as formula plans.It is a process of holding a well diversified portfolio for long term with the buy and holdapproach.It also refers to the investor’s attempt to construct a portfolio that resembles the overallmarket returns.
For e.g.-
I
 
f Reliance Industry’s stock constitutes 5% of the index, the fund also investsof 5% of its money in Reliance Industry Stock.
WHAT ARE FORMULA PLANS ?
Formula Plans are certain predefined rules and regulations deciding when and how manyassets an individual can purchase or sell for portfolio revision
.
Securities can be purchasedand sold only when there are changes or fluctuations in the financial market.It consists of a predetermined rule and these rules calls for specified action when there arechanges in the securities market.
WHY FORMULA PLANS ?
Formula plans help an investor to make the best possible use of fluctuationsin the financial market. One can purchase shares when the prices are less and selloff when market prices are higher.

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