ASSIGNMENT OF SECURITY

ANALYSIS & PORTFOLIO

MANAGEMENT ON
PORFOLIO MANAGEMENT

SUBMITTED BY: SUBMITTED TO:-

PRINCE SHARMA PROF. HARPREET KAUR
M.B.A-II
ROLL NO.- 22
WHAT IS PORTFOLIO AND PORTFOLIO MANAGEMENT?
The portfolio is a collection of investment instruments like shares, mutual funds, bonds, FDs
and other cash equivalents, etc. Portfolio management is the art of selecting the right
investment tools in the right proportion to generate optimum returns with a balance of risk
from the investment made.

In other words, a portfolio is a group of assets. The portfolio gives an opportunity to diversify
risk. Diversification of risk does not mean that there will be an elimination of risk. With every
asset, there is an attachment of two types of risk;
diversifiable/unique/unexplained/unsystematic risk and undiversifiable/ market risk / explained
/systematic risk. Even an optimum portfolio cannot eliminate market risk, but can only reduce
or eliminate the diversifiable risk. As soon as risk reduces, the variability of return reduces.

Best portfolio management practice runs on the principle of minimum risk and maximum return
within a given time frame. A portfolio is built based on investor’s income, investment budget
and risk appetite keeping the expected rate of return in mind.

OBJECTIVES OF PORTFOLIO MANAGEMENT

When the portfolio manager builds a portfolio, he should keep the following objectives in mind
based on an individual’s expectation. The choice of one or more of these depends on the
investor’s personal preference.

Capital Growth

Security of Principal Amount Invested

Liquidity

Marketability of Securities Invested in

Diversification of Risk

Consistent Returns

Tax Planning

PROCESS IN PORTFOLIO MANAGEMENT

Portfolio management process is not a one-time activity. The portfolio manager manages the
portfolio on a regular basis and keeps his client updated with the changes. It involves the
following tasks:
Understanding the client’s investment objectives and availability of funds

Matching investment to these objectives

Recommending an investment policy

Balancing risk and studying the portfolio performance from time to time

Taking a decision on the investment strategy based on discussion with the client

Changing asset allocation from time to time-based on portfolio performance

WHY IS PORTFOLIO MANAGEMENT IMPORTANT?

It is important due to the following reasons:

PM is a perfect way to select the “Best Investment Strategy” based on age, income, risk taking
the capacity of the individual and investment budget.

It helps to keep a gauge on the risk taken as the process of PM keeps “Risk Minimization” as the
focus.

“Customization” is possible because an individual’s needs and choices are kept in mind i.e.
when the person needs the return, how much return expectation a person has and how much
investment period an individual selects.

Taking into account changes in tax laws, investments can be made.

When investment is made in fixed income security like preference share or debenture or any
other such security, then in that case investor is exposed to interest rate risk and price risk of
security. PM can take help of duration or convexity to immunize the portfolio.

TYPES OF PORTFOLIO MANAGEMENT

Portfolio Management Services are classified into two broad categories:

On the basis of a level of activity viz.

ACTIVE & PASSIVE PORTFOLIO MANAGEMENT

Active PM refers to the service when there is active involvement of portfolio managers in buy-
sell transactions for securities. It ensures meeting the investment objectives of the investor.
Whereas Passive PM refers to managing a fixed portfolio where the portfolio performance is
matched to the market index. (i.e. market)
On the basis of discretionary powers allowed to Portfolio Manager i.e.

DISCRETIONARY & NON-DISCRETIONARY PORTFOLIO MANAGEMENT

Discretionary PM refers to the process where portfolio management has the authority to make
financial decisions. It makes those decisions for the invested funds on the basis of investor’s
investment needs. Apart from that, he also does the entire documentary work and filing too.
Non-Discretionary PM refers to the process where a portfolio manager acts just as an advisor
for which investments are good and unprofitable. And the investor takes the decisions.