Portfolio Management and it’s objectives, nature & principles

Portfolio Management is a process encompassing many activities of managing investment effectively in assets and securities.

The term portfolio refers to collection of investment tools such as securities. Since it is rarely desirable to invest the entire funds of an individual or an institution in a single security, it is necessary that every security be viewed in portfolio context. A portfolio is not merely a collection of unrelated assets, but a carefully blended financial asset which include shares, bonds and debentures of the companies.

Portfolio management refers to the act of investing and managing a person's assets by a portfolio expert to increase your wealth in an effort to maximize return on capital.

Portfolio Management and it’s objectives, nature & principles

Objectives of portfolio management:

The objective of portfolio management can be classified into two categories as listed below:

1. Basic Objectives:

The basic objectives of portfolio management are

a) to maximize yield (Return of Investment)

b) to minimize risk

2. Ancillary Objectives:

The following are the other ancillary objectives of portfolio management:

a) Regular Return (Consistency)

b) Stable Income

c) Appreciation of capital by creating wealth

d) Take care of Investor’s Liquidity Requirement

e) Easy Marketability

f) Safety of Investment (Protection)

g) Tax Benefits (Reduce tax burden)

h) Allocation of optimal resources (Diversification)

i) Save for Retirement Plan

Nature of Portfolio Management

Portfolio Management is a dynamic and flexible concept and involves regular and systematic analysis, judgements and actions.
The aim of this service is to help the unknown and uninitiated investors with the expertise of professionals in portfolio management, as given below:
1) It involves construction of portfolio based upon the investors objectives, constraints and preferences for risk and return and tax liability.
2) The portfolio is reviewed and revised from time to time in tune with market conditions
3) The evaluation of portfolio is to be done in terms of targets set for risk and return.
4) The changes in the portfolio are to be effected to meet the changing conditions.

Principles or Elements of Portfolio Management

Portfolio Management is an on-going process involving the following basic tasks.

1) Identification of the investor's objectives, constraints and preferences to frame the investment policy (Buy and Hold Policy, Buy and Sell Policy, Constant Mix Policy, Variable Mix Policy Etc.,)

2) Development of strategies to minimize risk while selecting securities

3) Monitoring the performance of the portfolio by reviewing the market environments

4) Making comparison of portfolio income with targets of investment policy.

5) Making revision in the portfolio to adjust its achievements in relation to its targets.

Hope these details gave you an idea of what is portfolio management, it's objectives, nature and principles to manage effective investment & maximize your wealth.

Categories: Investment Planning, Portfolio Management, Tutorials