Know the Fundamentals of Investment Portfolio Management

Posted by Nirav Singhaniya on January 20th, 2020

Every investor has a dream portfolio. It comprises of stocks and securities and other investment instruments, arranged in such fashion that the investor has an ideal condition where he would be less susceptible to losses at any given moment yet have enough scope for taking a risk. The term portfolio can be defined by an arrangement where there is a set of assets. If you want to reach optimal portfolio then you can achieve it following two primary theories. The variance which can be a standard deviation or square root and mean return will determine the value of your assets. But if you want a secure portfolio, a balanced portfolio will only give it to you. It brings us to the question,

What is portfolio management?

Portfolio management services, unlike financial planning, is the process where your investment account is created and maintained. Professional portfolio managers will take adequate and appropriate risk and try to maximize the profit that you can have with your investment as an investor.

There are two types of portfolio management practice. Active and passive ones

Active portfolio management – In this kind of management service, you will have one dedicated manager or even a team of manager who will help you manage your funds constantly and you will see continuous action. If you have a close-ended fund, active portfolio management is imperative for the health of your financial status.

Passive portfolio management – This is a long-term strategy. When brought into action, you can actually forget about it. The portfolio is measured against indexes and thus this type of management is also called index investing or indexing.

Structure of portfolio management

There are certain factors that contribute to structuring the portfolio. The portfolio management process has many components. Here are some key concepts.

Allocation of assets – How assets are mixed and allocated is the crux of a portfolio. While allocating assets the principle that has to be kept in mind is that not all assets perform similarly. The difference in performance is to be taken into account. That would give the investor a good mix of volatile and stable funds, balancing potential losses and risks. If you have indexed portfolio then following the portfolio theory of variance would do justice to your funds. In case you have hired managers they would employ different strategies to keep your funds going.

Rebalancing – This is an act that helps the allocation balance to be restored to original form. It helps minimize risk and the annual restructuring also helps keep track of original allocation strategy. It also helps to formulate a newer strategy that is more adaptive and hence more dynamic. It gives the investor the opportunity to make the maximum profit annually and potentiality to expand for much more. It also gives the investor an insight into their risk appetite.

Diversification – This is an attempt to distribute the risk in various investment. A well-distributed or diversified portfolio means that the risk of loss would be balanced out and the investor would gain no matter the performance of the securities. If not gain a lot, as an investor with a well-diversified portfolio, you will stand to lose little to no loss. It also addresses volatile investment and brings more stability to the entire portfolio.

As an investor, while managing your portfolio you must try to reduce risk and resilience to losses. A good ratio between stocks and securities can help you achieve that. Keeping a tab on the taxes is another important aspect that you must not lose focus on. If you are not sure of how to manage your own portfolio you can always seek help from reputed brokers like IndiaNivesh who provide portfolio management services in India. They will manage your assets on your behalf and you can enjoy the benefits from the comfort of your home.