1.

   SET A FIRM FOUNDATION WITH ASSET ALLOCATION

 Combine top-down, macroeconomics with bottom-up, underlying investment

perspectives
 Build well-diversified asset allocation portfolios linked to investor goals
 Create boundaries for portfolios’ risk exposure and return potential
 Identify important market inflection points
 Systematically consider the risk arising from the sizing of active decisions
 Apply general investor risk preferences to all aspects of the investment process

2.   DIVERSIFY WISELY WITH ACTIVE PORTFOLIO DESIGN

 Take a multi-dimensional approach to portfolio construction, combining different

asset classes, geographic regions, and investment styles
 Create portfolios designed to deliver consistent long-term results in line with
investor goals

3.   SELECT INVESTMENTS AND EVALUATE LEADING MANAGERS

 Develop forward-looking expectations regarding execution in different economic

environments
 Select investments and managers using a process that differentiates manager
“skill” from “luck”
 Aim to have the best managers in the portfolios at all times
 Evaluate investments and managers using a common framework, within and
across disciplines

4.   KEEP INVESTMENTS ON TRACK WITH ACTIVE PORTFOLIO CONSTRUCTION AND MANAGEMENT

 Select investments directly for our specialized mandates

 Use a value based approach to implement strategic fund portfolio-level changes
more cost effectively
 Actively measure and allocate to each investment based on an allocation of risk
 Ensure consistency between investment styles and the assigned objectives

5.   ACTIVELY MANAGE RISK

 Operate risk management separate and independent from investment strategy

 Focus on common risks across and within asset classes

Step 1- Understanding the client

The first and the foremost step of investment process is to understand the client or the investor
his/her needs, his risk taking capacity and his tax status. After getting an insight of the goals and
restraints of the client, it is important to set a benchmark for the client’s portfolio management
process which will help in evaluating the performance and check whether the client’s objectives
are achieved.
Step 2- Asset allocation decision
This step involves decision on how to allocate the investment across different asset classes, i.e.
fixed income securities, equity, real estate etc. It also involves decision of whether to invest in
domestic assets or in foreign assets. The investor will make this decision after considering the
macroeconomic conditions and overall market status.

Step 3- Portfolio strategy selection

Third step in the investment process is to select the proper strategy of portfolio creation.
Choosing the right strategy for portfolio creation is very important as it forms the basis of
selecting the assets that will be added in the portfolio management process. The strategy that
conforms to the investment policies and investment objectives should be selected.

There are two types of portfolio strategy-

1. Active Management
2. Passive Management
Active portfolio management process refers to a strategy where the objective of investing is to
outperform the market return compared to a specific benchmark by either buying securities that
are undervalued or by short selling securities that are overvalued.  In this strategy, risk and return
both are high. This strategy is a proactive strategy it requires close attention by the investor or
the fund manager.
Passive portfolio management process refers to the strategy where the purpose is to generate
returns equal to that of the market. It is a reactive strategy as the fund manager or the investor
reacts after the market has responded.

Step 4- Asset selection decision

The investor needs to select the assets to be placed in the portfolio management process in the
fourth step. Within each asset class, there are different sub asset-classes. For example, in
equity, which stocks should be chosen? Within the fixed income securities class, which bonds
should be chosen?

Also, the investment objectives should conform to the investment policies because otherwise the
main purpose of investment management process would become meaningless.

Step 5- Evaluating portfolio performance

This is the final step in the investment process which evaluates the portfolio management
performance. This is an important step as it measures the performance of the investment with
respect to a benchmark, in both absolute and relative terms. The investor would determine
whether his objectives are being achieved or not.
Conclusion

After all the above points have been followed, the investor needs to keep monitoring the portfolio
management performance at an appropriate interval. If the investor finds that any asset is not
performing well, he/she should ‘re balance’ the portfolio. Re balancing means adding or removing
(or better call it adjusting) some assets from the portfolio to maintain the target level. Re
balancing helps the investor to maintain his/her level of risk and return.

Meaning
An investment is essentially an asset that is created with the intention of allowing money to grow. The
wealth created can be used for a variety of objectives such as meeting shortages in income, saving up
for retirement, or fulfilling certain specific obligations such as repayment of loans, payment of tuition
fees, or purchase of other assets.

1. To Keep Money Safe

Capital preservation is one of the primary reasons people invest their money. Some
investments help keep hard-earned money safe from being eroded with time. By
parking your funds in these instruments or schemes, you can ensure that you don’t
outlive your savings. Fixed deposits, government bonds, and even an ordinary
savings account can help keep your money safe. Although the return on investment
may be lower here, the objective of capital preservation is easily met.
2. To Help Money Grow
Another common objective of investing money is to ensure that it grows into a
sizable corpus over time. Capital appreciation is generally a long-term goal that
helps people secure their financial future. To make the money you earn grow into
wealth, you need to consider investment options that offer a significant return on
the initial amount invested. Some of the best investments to achieve growth
include real estate, mutual funds, commodities, and equity. The risk associated
with these options may be high, but the return is also generally significant.
3. To Earn a Steady Stream of Income
Investments can also help you earn a steady source of secondary (or primary)
income. Examples of such investments include fixed deposits that pay out regular
interest or stocks of companies that pay investors dividends consistently. Income-
generating investments can help you pay for your everyday expenses after you’ve
retired. Alternatively, they can also act as excellent sources of supplementary
income during your working years by providing you with additional money to
meet outlays like college expenses or EMIs.
4. To Minimize the Burden of Tax
Aside from capital growth or preservation, investors also have another compelling
incentive to consider certain investments. This motivation comes in the form of tax
benefits offered by the Income Tax Act, 1961. Investing in options such as Unit
Linked Insurance Plans (ULIPs), Public Provident Fund (PPF), and Equity Linked
Savings Schemes (ELSS) can be deducted from your total income. This has the
effect of reducing your taxable income, thereby bringing down your tax liability.
5. To Save up for Retirement
Saving up for retirement is a necessity. It’s essential to have a retirement fund you
can fall back on in your golden years, because you may not be able to continue
working forever. Additionally, it would be unfair to depend on your children to
support you later in life, particularly if they have children of their own to raise. By
investing the money you earn during your working years in the right investment
options, you can allow your funds to grow enough to sustain you after you’ve
retired.
6. To Meet your Financial Goals
Investing can also help you achieve your short-term and long-term financial goals
without too much stress or trouble. Some investment options, for instance, come
with short lock-in periods and high liquidity. These investments are ideal
instruments to park your funds in if you wish to save up for short-term targets like
funding home improvements or creating an emergency fund. Other investment
options that come with a longer lock-in period are perfect for saving up for long-
term goals.

#1 Not Understanding the Investment

One of the world's most successful investors, Warren Buffett, cautions against
investing in businesses you don't understand.1 This means that you should not
be buying stock in companies if you don't understand the business models.
The best way to avoid this is to build a diversified portfolio of exchange-traded
funds (ETFs) or mutual funds. If you do invest in individual stocks, make sure
you thoroughly understand each company those stocks represent before you
invest.

#2 Falling in Love With a Company

Too often, when we see a company we've invested in do well, it's easy to fall
in love with it and forget that we bought the stock as an investment. Always
remember, you bought this stock to make money. If any of the fundamentals
that prompted you to buy into the company change, consider selling the stock.

#3 Lack of Patience
How many times has the power of slow-and-steady progress become
imminently clear? Slow and steady usually comes out on top—be it at the
gym, in school, or in your career. Why, then, do we expect it to be different
from investing? A slow, steady and disciplined approach will go a lot further
over the long haul than going for the last-minute "Hail Mary" plays. Expecting
our portfolios to do something other than what they're designed to do is a
recipe for disaster. This means you need to keep your expectations realistic in
regard to the length, time and growth that each stock will encounter.

#4 Too Much Investment Turnover

Turnover, or jumping in and out of positions, is another return killer. Unless
you're an institutional investor with the benefit of low commission rates, the
transaction costs can eat you alive - not to mention the short-term tax rates
and the opportunity cost of missing out on the long-term gains of good
investments.
#5 Attempting Market Timing
Market timing, turnover's evil cousin, also kills returns. Successfully timing the
market is extremely difficult to do. Even institutional investors often fail to do it
successfully. A well-known study, "Determinants Of Portfolio Performance"
(Financial Analysts Journal, 1986), conducted by Gary P. Brinson, L.
Randolph Hood, and Gilbert L. Beebower covered American pension-fund
returns. This study showed that, on average, nearly 94% of the variation of
returns over time was explained by the investment policy decision.2 In
layperson's terms, this indicates that, normally, most of a portfolio's return can
be explained by the asset allocation decisions you make, not by timing or
even security selection.

#6 Waiting to Get Even

Getting even is just another way to ensure you lose any profit you might have
made. This means you are waiting to sell a loser until it gets back to its
original cost basis. Behavioral finance calls this a "cognitive error." By failing
to realize a loss, investors are actually losing in two ways. First, they avoid
selling a loser, which may continue to slide until it's worthless. Second, there's
the opportunity cost of what may be a better use for those investment dollars.

#7 Failing to Diversify
While professional investors may be able to generate alpha (or excess return
over a benchmark) by investing in a few concentrated positions, common
investors should not try to do this. Stick to the principle of diversification. In
building an ETF or mutual fund portfolio, remember to allocate an exposure to
all major spaces. In building an individual stock portfolio, allocate to all major
sectors. As a general rule of thumb, do not allocate more than 5% to 10% to
any one investment.

#8 Letting Your Emotions Rule

Perhaps the No.1 killer of investment return is your emotions. The axiom that
fear and greed rule the market is true. Do not let fear or greed overtake you.
Focus on the bigger picture. Stock market returns may deviate wildly over a
shorter time frame, but over the long term, historical returns for large-cap
stocks can average 10%. Realize that, over a long time horizon, your
portfolio's returns should not deviate much from those averages. In fact, you
may benefit from the irrational decisions of other investors.