PORTFOLIO

MANAGEMENT

ROLL NUMBER: 112-128

 PORTFOLIO
Refers to a collection of investment tools such as stocks, mutual funds, cash
,etc depending on the investors income, preferences, budget and convenient
time frame.

A theoritical bundle of investments

that inncludes every type
MARKET ofnvestment existing in the
PORTFOLIO financial market with each asset
weighted in proportion to the total
presence in the marltet.

TYPES
A group of investments when
combined together makes zero net
ZERO value. Such portfolio can be
INVESTMENT created by simultaneously
PORTFOLIO purchasing and selling the
securities.
PORFOLIO MANAGEMENT

• The art of selecting the right investment policy for the

individuals in terms of minimum and maximum risk is called
portfolio management.
• The need for portfolio management are as follows:
 Reduces the risk without affecting the return
 Helps investors in rational decision making.
 Helps to select best investment portfolio by:
 Identify the asset class that’s the investor should
invest in it.
 Deciding the proportion of each asset
 Deciding the proportion of each security
ACTIVE VS. PASSIVE PORTFOLIO
MANAGEMENT

ACTIVE
•Active portfolio management focuses on outperforming the
market compared to a specific benchmark.
• It aims to beat the market

PASSIVE
•Passive portfolio management aims to mimic the investment
holdings of a particular index.
• It is based on efficient market hypothesis.
• It focuses on decreasing cost which it does by buy and hold strategy
whiich entails low portfolio turnover.
• It aims to replicate the market.
OBJECTIVES

• Investment of the disposable income

• Liquidity
• Marketablity
• Well diversified portfolio
• Minimal tax burden
• Growth of capital
• Safety of principal amount.
 ELEMENTS OF RISK

ELEMENT
S OF
RISK

SYSTEMATI UNSYSTEMATI
C RISK C RISK

INTEREST MARKET PURCHASI BUSINESS FINANCIAL

RATE RISK RISK NG POWER RISK RISK
RISK
PORTFOLIO RETURN
• It is the monetary return experienced by a portfolio holder.
• It can be calculated on a daily basis to serve as a method of
assesing a particular investment strategy .
• Main components are:
 Dividend
 Capital appreciation

FORMULA:
EXAMPLE

One year ago, the stock price for stock A was Rs. 10
per share. The stock is currently trading at Rs. 9.50 per
share and shareholders just received a Re. 1 dividend.
What return was earned over the past year?
R= 5 %
 EXPECTED RATE OF RETURN
• It is calculated by taking the average of theprobabilitydistribution of all possibl
e returns.
• It is based on historical data and is not a guarantee.
• It is a tool to determine whether an investment has a positive or a negative
average outcome.
• The amount one would anticipate receiving on an investment that has various
known or expected rates of return.

EXAMPLE:
A portfolio has two shares X and Y:
X: 100 stocks @ Rs. 500
Y: 300 stocks @ Rs. 300
Expected return from X = 15%
Expected return from y = 12%
RETURN CALCULATION FOR SINGLE STOCK
(MULTIPLE PERIOD)

SIMPLE ARITHMETIC MEAN

HOLDING PERIOD RETURN

SIMPLE ANNUAL RETURN

COMPOUNDED ANNUAL GROWTH RATE

 COMPOUNDED ANNUAL GROWTH RATE
SITUATION 1: COMPANY NOT PAYING DIVIDEND

EXAMPLE: An investor has investment Rs. 100 in a stock that trade at Rs. 160
after 5 years. Calculate Annual growth rate.
COMPOUNDED ANNUAL GROWTH

SITUATION 2: A COMPANY PAYING DIVIDEND

• It is a case of geometric mean.
• Formula:

• Example:
 PORTFOLIO RETURN : 2 ASSET CASE

• The return of a portfolio is equal to the weighted average of the returns of

individuals assets in the portfolio with the weights equal to the proportion
of the value of the investment in each asset.

• EXAMPLE:
Mr. Mark has an opportunity of investing his wealth in either X or Y. The table
shows the following:

What will be the expected rate of return of Mr. Mark?

SOLUTION:

CALCULATE EXPECTED RATE OF RETURN

Now, if Mr. Mark decides to invest 50% of his wealth in X and 50% of his
wealth in Y. What would be the expected return on portfolio?
 Calculate the
Multiply each
combined
This can be done combined
outcome under
in two ways: outcome by its
each state of
probablity
economic mind
ASSET ALLOCATION STRATEGY

• STRATEGIC ASSET ALLOCATION

• INTEGRATED ASSET ALLOCATION
• TACTICAL ASSET ALLOCATION
• INSURED ASSET ALLOCATION
• CONSTANT WEIGHTING ASSET
ALLOCATION
• DYNAMIC ASSET ALLOCATION
CONCLUSION

We see that portfolio management is important in todays world.

Through, portfolio management we can even create a very low risk
portfolio with considerable return. Risk can be reduced to a great
extent.
THANKS!