INTRODUCTION TO

PORTFOLIO MANAGEMENT

Portfolio: In terms of mutual fund industry, a portfolio is built by buying

additional bonds, mutual funds, stocks, or other investments. If a person owns
more than one security, he has an investment portfolio. The main target of the
portfolio owner is to increase value of portfolio by selecting investments that
yield good returns.

Portfolio Management, implies tactfully managing an investment portfolio, by

selecting the best investment mix in the right proportion and continuously
shifting them in the portfolio, to increase the return on investment and
maximize the wealth of the investor. Here, portfolio refers to a range of
financial products, i.e. stocks, bonds, mutual funds, and so forth, that are held
by the investors.
Facts about Portfolio

There are many investment vehicles in a portfolio.

Building a portfolio involves making wide range of decisions regarding
buying or selling of stocks, bonds, or other financial instruments. Also,
one needs to make decision regarding the quantity and timing of the buy
and sell.
Portfolio Management is goal-driven and target oriented.
There are inherent risks involved in the managing a portfolio.
The basics and ideas of Investment Portfolio Management are also
applied to portfolio management in other industry sectors.
Aggressive Portfolio: An aggressive portfolio comprises of high-risk
investments like commodities, futures, options and other securities
expecting high returns in the short run.
Defensive Portfolio: Defensive portfolio comprises of stocks with low
risk and stable earnings. E.g. investments in high quality, blue-chip
stocks.
Hybrid Portfolio: This portfolio is the most balanced and commonly
used portfolio by the portfolio manager. A right combination of different
 kind of assets is seen where some are high risk-high return profile others
are low risk-low return ones.

Factors Influencing Investment Portfolio Management

Investment portfolio needs to be planned considering the various factors
related to the investor’s personal attributes. The major factors influencing
investment portfolio management are discussed below:

Time Span: Type of investment is selected by the period for which the
investor is willing to invest the sum. Investment in stock and equity must
be for long-term to yield high returns.
Age of Investor: The age of investor decides the type of investment, risk-
taking ability and the returns yield. A young investor may be able to take
a high risk as well as invest in long-term investments to earn higher
returns and vice-versa.
Risk Tolerance Level: The level of risk which an investor is willing to
take, influences the investment portfolio. Investors belonging to the low-
income group or older may not be willing to invest in high-risk assets.

Ways of Investment Portfolio Management

Investment is not a hit and trial method, it is all about going for a properly
planned strategy. To create a useful portfolio, we must KNOW THIS
 Diversification: The returns of some investments are unpredictable, and
thus the risk involved in it is quite high. But when a diversified portfolio
is prepared by combining such investments with the secured ones, the risk
becomes moderate, and the returns are reasonably fair.
Asset Allocation: Asset allocation is the combination of volatile and non-
volatile assets in which an investor is willing to invest. A portfolio
manager must create a balanced portfolio to seek high returns and
minimise risk for investors.
Rebalancing: The portfolio manager needs to evaluate client’s portfolio
from time to time and revise the ratio of investment in different assets
(volatile and stable assets) to avail high value. Rebalancing lets the
investor make use of future opportunities and brings in flexibility.

Process of Investment Portfolio Management

A step by step sequence needs to be followed to achieve the desired results. The
same is elaborated below:
Identification of Investment Objectives: The portfolio manager clearly
understands the client’s investment objective. It can be either capital
appreciation or stable returns.
Estimation of Capital Market: The expected returns and risk involved
in the various capital market assets are analysed and compared.
Decision Regarding Asset Allocation: Decisions regarding the ratio or
combination of different assets like stocks and bonds are taken wisely to
generate better returns at minimal risk.
Formulation of Portfolio Strategy: Accordingly, a strategy for
investment duration and risk exposure is formulated.
Selection of Securities and Investment: The assets are analysed on
fundamental, technical, maturity, credibility and liquidity grounds. The
best options are selected out of the proposed ones.
Implementation: The planned portfolio is executed by investing in
the selected investment options.
Revision and Evaluation of Portfolio: The portfolio is evaluated at
regular intervals, and the scope of improvement or better opportunities
are analysed.
Rebalancing the Portfolio: Necessary steps to improve the portfolio
are taken by rebalancing the ratio of investment and the assets to
improve the efficiency of the investment portfolio.

Active: In, active investment portfolio management, the portfolio

manager is mainly concerned about making better returns than expected
for his clients. He depends on financial hypothesis and past experiences
and actively participates in the market by buying and selling stocks on a
regular basis.
 Passive: Passive portfolio management focuses on a robust portfolio
based on the present market scenario. It aims at stable returns in a long-
term period.
Discretionary: In discretionary investment portfolio management, the
investor hands over the investment fund to the portfolio manager to
handle his investment portfolio, complete relevant documents and take
related decisions on his behalf.
Non-Discretionary: The portfolio manager can only advise and suggest
his clients on different investment opportunities, he does not have the
authority to take any decisions on their behalf.

What is an Investment
An investment is an asset or item acquired with the goal of generating
income or appreciation. In an economic sense, an investment is the
purchase of goods that are not consumed today but are used in the future to
create wealth, a monetary asset purchased with the idea that the asset will
provide income in the future or will later be sold at a higher price for a
profit.
Investment and Economic Growth

Economic growth can be encouraged through the use of sound investments at

the business level. When a company constructs or acquires a new piece of
production equipment in order to raise the total output of goods within the
facility, the increased production can cause the nation’s gross domestic product
(GDP) to rise. This allows the economy to grow through increased
production based on the previous equipment investment.

BREAKING DOWN Investment

The term "investment" can refer to any mechanism used for generating future
income. In the financial sense, this includes the purchase of bonds, stocks
or real estate property. Additionally, a constructed building or other facility
used to produce goods can be seen as an investment. The production of goods
required to produce other goods may also be seen as investing.

Investments and Speculation

Speculation is a separate activity from making an
investment. Investing involves the purchase of assets with the intent of holding
them for the long term, while speculation involves attempting to capitalize on
market inefficiencies for short-term profit. Ownership is generally not a goal of
speculators, while investors often look to build the number of assets in their
portfolios over time.

Although speculators are often making informed decisions, speculation cannot

usually be categorized as traditional investing. Speculation is generally
considered higher risk than traditional investing, though this can vary depending
on the type of investment involved.

Investment Banking
An investment bank provides a variety of services designed to assist an
individual or business in increasing associated wealth. This does not include
traditional consumer banking. Instead, the institution focuses on investment
vehicles such as trading and asset management. Financing options may also be
provided for the purpose of assisting with the these services.
SCOPE OF PORTFOLIO STUDY
Monitoring and performance of the portfolio by latest market conditions
Identification of the investor objectives
Making an evaluation of portfolio income
Hoew to revise the portfolio
How youth and senior people decide their portfolio

METHODOLGY
Primary data
Secondary data
Questioner
The money control sites and journals
Rbi data from respective years

Tools and techniques

Bar graphs
Charts
Images
 Chapter 2

LITERATURE REVIEW

Value investing is a comprehensive investment philosophy to perform in-

depth fundamental analysis to limit risk, resist the crowd psychology,1
and achieve long-term investment results. It is also the practice of
purchasing securities or assets for less than its intrinsic value

Value investors seek stocks of companies that trade below their

estimations of intrinsic value in the market, they act based on the theory
that markets overreact to good and bad news resulting in stock price
movements that do not correspond with the company’s long-term
fundamentals.

Dr. G.P.Jakhotia and Mrs. M.G. Jjakhotiya (2001) ‘finance for one and
All’elaborated the techniques of investment management for individual
investors .He discussed reasons for making investment and listed five
important reasons for investment such as :
Regular income
Growth of Wealth
Contingency arrangement
fighting inflation
Oldage or post retirement Provision Then he discussed the factors
deciding of optional portfolio
Then he discussed the factors deciding of optional portfolio
investment .in which he listed sensitive factors
 Rate of Return
 Degree of Risk
 Degree of inflation
 Rate of growth
 Liquidity or Marketability
G.Cotter Cunningham(2004 ‘YourFinancial Action Plan explained into twelve
simple steps for achieving money success. The consumer’s personal financial
issues comprehensively and objectively covered into the book. It has twelve
chapters’ .The basic financial issues such as creating a will, building a savings
nest egg and making and sticking to a monthly budget is explained in a first
chapter. The survey in this book showed that people who pays their bills .

1. Shuck off debts

2. Pay down mortgage completely before retirement

3. Do not count on social security

4. Do not forgot to consider long term care insurance

Valery Polkovnichenko(2005) ‘Household Portfolio Diversification: A Case for

Rank-Dependent Preferences’ has supported for rank dependent preferences
The rank-dependent expected utility model also known as anticipated utility.
This model comprises generalized expected utility model of choice under
uncertainty, This model explained the behaviour of people that people both
purchase lottery tickets which indicates risk taking preferences and insurance
are implying risk aversion. For the survey of consumer expenditure data was
used.He figure out two widespread pattern inconsistent with expected
utility.One is majority of household had investment in well diversified funds
.They had poor portfolios of stock. Second are households who had
moresavings but their investment in equity was very low. He argued that
portfolio choice models with rank-dependent preferences are used parameters as
possible and with fully rational assumptions which are constant and quantitative
with the observed diversification. He suggested there is need to integrate the
models of rank-dependent preferences in portfolio theory and asset pricing.

Gnana Desigan studied women investors‘ perception towards investment. An

empirical study focuses on investment pattern of women investors. Research
concluded with finding that age of the women investors and level of awareness
about investment is not associated and no significant association between
educational level and level of awareness about investment. Significant
association was found between occupation and level of awareness, monthly
income and level of awareness and absence of association between marital
status and level of awareness
 CHAPTER 1
A STUDY ON
INVESTMENAVENUES AND PORTFOLIO MANAGEMENT