NEED OF PORTFOLIO AND PORTFOLIO

MANAGEMENT
 NEED OF PORTFOLIO AND PORTFOLIO MANAGEMENT

The portfolio is needed for the selections of optimal, portfolio by rational risk averse investors i.e.
by investors who attempt to maximize their expected return consistent with individually acceptable
portfolio risk. The portfolio is essential for portfolio construction. The portfolio construction refers
to the allocation of funds among a variety of financial assets open for investments. Portfolio
concerns itself with the principles governing such allocation. The objective of the portfolio theory
is to elaborate the principles in which the risk can be minimized, subject to the desired level of
return on the portfolio or maximize the return, subject to the constraints of a tolerable level of risk.
The need for portfolio management arises due to the objectives of the investors. The emphasis of
portfolio management varies from investors to investor. Some want income, some capital gains
and some combination of both. However, the portfolio analysis enables the investors to identify
the potential securities, which will maximize the following objectives:
Securities of principal, stability of income, capital growth, marketability, liquidity and
diversification.
Thus the basic need of portfolio is to maximize yield and minimize yield and minimize the risk.
The other ancillary needs are as follows:
1. Providing regular or stable income.
2. Creating safety of investments and capital appreciation.
3. Providing marketability and liquidity.
4. Minimizing the tax liability
GOALS OF PORTFOLIO MANAGEMENT
 GOALS OF PORTFOLIO MANAGEMENT

 Value Maximization

Allocate resources to maximize the value of the portfolio via a number of key objectives such as
profitability, ROI, and acceptable risk. A variety of methods are used to achieve this maximization
goal, ranging from financial methods to scoring models.

 Balance

Achieve a desired balance of projects via a number of parameters: risk versus return; short-term
versus long-term; and across various markets, business arenas and technologies. Typical methods
used to reveal balance include bubble diagrams, histograms and pie charts.

 Business Strategy Alignment

Ensure that the portfolio of projects reflects the company’s product innovation strategy and that
the breakdown of spending aligns with the company’s strategic priorities. The three main
approaches are: top-down (strategic buckets); bottom-up (effective gate keeping and decision
criteria) and top-down and bottom-up (strategic check).

 Pipeline Balance

Obtain the right number of projects to achieve the best balance between the pipeline resource
demands and the resources available. The goal is to avoid pipeline gridlock (too many projects
with too few resources) at any given time. A typical approach is to use a rank ordered priority list
or a resource supply and demand assessment.

 Sufficiency

Ensure the revenue (or profit) goals set out in the product innovation strategy are achievable given
the projects currently underway. Typically this is conducted via a financial analysis of the
pipeline’s potential future value.