You are on page 1of 11


Portfolio means combined holding of many kinds of financial securities i.e. shares, debentures, government bonds, units and other financial assets. The term investment portfolio refers to the various assets of an investor which are considered as a unit. A portfolio is built up out of the wealth or income of the investor over a period of time with a view to manage the risk-return preferences. The analysis of the risk-return characteristic of individual securities in the portfolio is made from time to time and changes may take place in combination with other securities are adjusted accordingly. The object of portfolio is to reduce risk by diversification and maximize gains. A combination of securities with different risk-return profile will constitute the portfolio of the investor. Thus portfolio is a combination of assets and/or instruments of investments. The combination may have different features of risk & return, separate from those of components. A collection of various company shares, fixed interest securities or money-market instruments. People may talk grandly of 'running a portfolio' when they own a couple of shares but the characteristic of a serious investment portfolio is diversity. It should show a spread of investments to minimize risk - brokers and investment Advisers warn against 'putting all your eggs in one basket' Investment account arrangement in which an investment manager makes the buysell decisions without referring to the account owner (client) for every transaction. The manager, however, must operate within the agreed upon limits to achieve the client's stated investment objectives.


A good way to begin understanding what portfolio management is (and is not) may be to define the term portfolio. In a business context, we can look to the mutual fund industry to explain the term's origins. Morgan Stanley's Dictionary of Financial Terms offers the following explanation: If you own more than one security, you have an investment portfolio. You build the portfolio by buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase the portfolio's value by selecting investments that you believe will go up in price. According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes enough different types, or classes, of securities so that at least some of them may produce strong returns in any economic climate. Portfolio management is a tool provides some basic benefits such as giving a holistic view of the various investments and the alignment of the investments with the long term goals of the individual. However Portfolio is one of the most challenging jobs and therefore isn't easy. Portfolio Management can help you gain control of your investments and deliver some meaningful value to your earnings from the investments. Portfolio Management takes a holistic view of the overall earning strategy of the individual. Portfolio Management is used to select a portfolio of new product development projects to achieve the following goals:
y y y

Maximize the profitability or value of the portfolio Provide balance Support the strategy of the enterprise

Portfolio management is the best process or making planned decisions and also for determining the expenditures of the business. An effective way of portfolio management ensures the growth of the organization and also the other business establishments of the organization. Portfolio management refers to the selection of securities and their continuous shifting in the portfolio to optimize returns to suit the objectives of an investor.


The objective of portfolio management is to maximize the return and minimize the risk. Security/Safety of Principal: Security not only involves keeping the principal sum intact but also keeping intact its purchasing power. Stability of Income: Stability of income so as to facilitate planning more accurately and systematically the reinvestment or consumption of income. Capital Growth: Capital growth which can be attained by reinvesting in growth securities or through purchase of growth securities. Marketability: The case with which a security can be bought or sold. This is essential for providing flexibility to investment portfolio. Liquidity: Liquidity i.e. nearness to money. It is desirable for the investor so as to take advantage of attractive opportunities upcoming in the market. Diversification: The basic objective of building a portfolio is to reduce the risk of loss of capital and income by investing in various types of securities and over a wide range of industries. Tax Incentives: Investors try to minimize their tax liabilities from the investments. The portfolio manager has to keep the list of such investment avenues along with the return risk, profile, tax implications, yield and other returns. An investment program without considering tax implications may be costly to the investor.

Particulars STOCK MARKET DEBT MARKET GOLD MUTUAL FUND INSURANCE SECTOR HDFC BANK (F.D) DERIVATIVE MARKET COMMODITY MARKET NET WORTH Investment 1,00,000 (10%) 1,00,000 (10%) 1,00,000 (10%) 1,00,000 (10%) 1,00,000 (10%) 3,00,000 (30%) 50,000 (05%) 50,000 (05%) 10,00,000

Mr. ABC has invested Rs 10,00,000 in portfolio he has taken portfolio management services by portfolio manager or by fund manager who helps Mr.ABC to have portfolio with high or with maximum returns on his investments with low or minimum risk. As he had invested 10% of his funds I.e RS 1,00,000/- in stock market and 10% means 1,00,000 in debt market in bonds. Further 10 % of RS 10,00,000 I.E 1,00,000 in mutual funds and other 10% in insurance sector as to secure the life and less risky investment by getting huge returns in end of the policy or on maturity. 10% in gold as the commodity like gold is appreciating day to day as today the commodity like gold is having high returns so it gives huge profit on investment of gold. Today the interest rate has increased due to that investing in banks in fixed deposits for few years would be profitable to Mr.ABC. So investment in banks in f.d is 30% i.e. 3,00,000/- with low risk and high interest. As investors main objective is to earn maximum profits or returns on his investment with low or minimum risk but sometimes an investor should take risk as per its apatite as Mr. ABC has invested 5% in commodity and 5% in derivatives in F&O and had taken high risk to get huge returns.


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. Hence this is very much important to the stock dealers especially who are new to the market. 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. As per definition of SEBI Portfolio means a collection of securities owned by an investor. It represents the total holdings of securities belonging to any person". It comprises of different types of assets and securities. Portfolio management refers to the management or administration of a portfolio of securities to protect and enhance the value of the underlying investment. It is the management of various securities (shares, bonds etc) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. It helps to reduce risk without sacrificing returns.



y y y

portfolio managers works as a personal relationship manager through whom the client can interact with the fund manager at any time depending on his own preference. To discuss any concerns regarding money or saving, the client can interact with his appointed portfolio manager on monthly basis. The client can discuss on any major changes he want in his asset allocation and investment strategies. Portfolio management service (PMS) handles all type of administrative work like opening a new bank account or dealing with any financial settlement or depository transaction. While choosing online Portfolio management service (PMS), the client receives a User-ID and Password, which helps him in getting online access to his portfolio details and checking his portfolio as frequent as he want. Portfolio management service (PMS) also help in managing tax of his client based on the detailed statement of the transactions found on his portfolio.

A professional, who manages other peoples or institutions investment portfolio with the object of profitability, growth and risk minimization is known as a portfolio manager. He is expected to manage the investor assets prudently and choose particular investment avenues appropriate for particular times aiming at maximization of profit. This is a new role for organizations that embrace a portfolio management approach. A portfolio manager is responsible for continuing oversight of the contents within a portfolio. If you have several portfolios within your portfolio structure, then you will likely need a portfolio manager for each one. The exact range of responsibilities (and authority) will vary from one organization to another, but the basics are as follows: y One portfolio manager oversees one portfolio. y The portfolio manager provides day-to-day oversight. y The portfolio manager periodically reviews the performance of, and conformance to expectations for, initiatives within the portfolio. y The portfolio manager ensures that data is collected and analyzed about each of the initiatives in the portfolio. y The portfolio manager enables periodic decision making about the future direction of individual initiatives. y Portfolio Manager is a professional who manages the portfolio of an investor with the objective of profitability, growth and risk minimization. y He is expected to manage the investors assets prudently and choose particular investment avenues appropriate for particular times aiming at maximization of profit. He tracks and monitors all your investments, cash flow and assets, through live price updates. y The manager has to balance the parameters which defines a good investment i.e. security, liquidity and return. The goal is to obtain the highest return for the client of the managed portfolio. y There are two types of portfolio manager known as Discretionary Portfolio Manager and Non Discretionary Portfolio Manager. Discretionary portfolio manager is the one who individually and independently manages the funds of each client in accordance with the needs of the client and non-discretionary portfolio manager is the one who manages the funds in accordance with the directions of the client.


Following are some of the responsibilities of a Portfolio Manager: y The portfolio manager shall act in a fiduciary capacity with regard to the client's funds. y The portfolio manager shall transact the securities within the limitations placed by the client. y The portfolio manager shall not derive any direct or indirect benefit out of the client's funds or securities. y The portfolio manager shall not borrow funds or securities on behalf of the client. y The portfolio manager shall ensure proper and timely handling of complaints from his clients and take appropriate action immediately. y The portfolio manager shall not lend securities held on behalf of clients to a third person except as provided under these regulations.


There is some advise that you keep getting from the media. You have heard it so many times that you know that it is correct (or the person who is giving, the journal, the channel, all of them believe)but most people do not know how to use it. So I call it brilliant, but completely useless advice:
1. When in equities, buy low and sell high. 2. When everybody is selling, you should be buying and the reverse. 3. Avoid companies with dubious management. 4. Diversify equity exposure across 4-5 sectors. 5. Diversification is a protection against ignorance. 6. Commodity investing! 7. Avoid penny and Z category stocks 8. Go to a professional. Do not churn your portfolio. 9. Unit linked insurance is a good investment 10. Rebalance your portfolio every quarter


y Undiversifiable : Also known as "systematic" or "market risk", undiversifiable risk is associated with every company. Causes are things like inflation rates, exchange rates, political instability, war and interest rates. This type of risk is not specific to a particular company and/or industry, and it cannot be eliminated or reduced through diversification; it is just a risk that investors must accept. y Diversifiable: This risk is also known as "unsystematic risk", and it is specific to a company, industry, market, economy or country; it can be reduced through diversification. The most common sources of unsystematic risk are business risk and financial risk. Thus, the aim is to invest in various assets so that they will not all be affected the same way by market events. y Volatility Risk: Volatility risk in financial markets is the likelihood of fluctuations in the exchange rate of currencies. Therefore, it is a probability measure of the threat that an exchange rate movement poses to an investor's portfolio in a foreign currency. The volatility of the exchange rate is measured as standard deviation over a dataset of exchange rate movements. y Interest Rate Risk: The earnings of the companies and the performance of their shares are sensitive to interest rates changes. Therefore, potential variability of investment returns due to interest rate fluctuations in interest rate risk. The prices of debt security and all other securities with fixed payout are dependent upon the level of market interest rate. The degree of sensitivity to interest rate changes will naturally differ from company to company. y Market risk: The market risk means the variability in the rates of return caused by the market up swings or market down swings. It is caused by investor reactions to tangible as

well as intangible events in the market. Some securities are quite sensitive to changes in the market and have a high degree of risk. y Liquidity Risk: Liquidity risk arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to trade that asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade. y Default risk: It is the risk of the issuer of investment going bankrupt. An investor who purchases shares and debentures will have to face the possibility of default and bankruptcy of the company. In the case of fixed income securities such as debentures or fixed deposits of the companies, the investor may take the care to see that the credit rating given to the company, so that the risk can be minimized. y Business Risk: Business risk means the risk of a particular business failing and thereby your investment is lost. It is identifiable as the variation in firms earnings due to its business or product line. The principal determinants of a firms business risk are the variability of sales and its operating leverages. y Financial risk: The financial risk is a function of the companys capital structure or financial leverage. The company may fall on financial grounds, if its capital structure tends to make earnings unstable. Financial leverage is the percent change in net earnings for a given results from the use of debt financing in the capital structure. y Purchasing Power Risk: The purchasing power f a security is the variation of real returns on the security caused by inflation. Inflation reduces the purchasing power of money over time. As, price rise, the purchasing power of a rupee falls and the real return on an investment may fall even though the nominal return in current rupee rise. The impact of inflation is felt greater in case of fixed income investments.


While the concept of Portfolio Management Services and Mutual Funds remains the same of collecting money from investors, pooling them and investing the funds in various securities. There are some differences between them described as follows: 1) In the case of portfolio management, the target investors are high net-worth investors, while in the case of mutual funds the target investors include the retail investors. 2) In case of portfolio management, the investments of each investor are managed separately, while in the case of MFs the funds collected under a scheme are pooled and the returns are distributed in the same proportion, in which the investors/ unit holders make the investments. 3) The investments in portfolio management are managed taking the risk profile of Individuals into account. In mutual fund, the risk is pooled depending on the objective of a scheme. 4) In case of portfolio management, the investors are offered the advantage of personalized service to try to meet each individual clients investment objectives separately while in case of mutual funds investors are not offered any such advantage of personalized services. The trend towards liberalization and globalization of the economy has promoted free flow capital across international borders. Portfolios now include not only domestic securities but also foreign securities. Diversification has become international. Another significant development in the field of portfolio management is the introduction of derivatives securities such as options and futures. The trading in derivative securities, their valuation, etc. has broadened the scope of portfolio management. Portfolio management is a dynamic concept, having systematic approach that helps it to achieve efficiency in investment


Portfolio Management is must as it manages the funds of the investor and provides Portfolio Management Services. Recently, based on client and internal experiences, a survey of ideas, and research and development efforts, it has developed a model of the types and nature of specific work efforts that fall within the boundary of portfolio management. It is also conducting a variety of efforts aimed at identifying a body of methods and practices that define, enable, and integrate the work of portfolio management. Portfolio management services will deal with various aspects of the practice of portfolio management, as well as the enabling body of definitions, models, and methods that guide the execution of effective work effort in that space. Portfolio manager who handle the account of the investor as per the investor objective and do diversification accordingly so that investor will get maximum returns with minimum risk.