# What is portfolio management?

Answer: Portfolio management is the art and science of making decisions about investment mix and
policy, matching investments to objectives, asset allocation for individuals and institutions, and
balancing risk against performance.

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, those are held by the investors.

# Write down the types of portfolio management.

Answer:

1. Active Portfolio Management: When the portfolio managers actively participate in the trading
of securities with a view to earning a maximum return to the investor, it is called active portfolio
management.

2. Passive Portfolio Management: When the portfolio managers are concerned with a fixed
portfolio, which is created in alignment with the present market trends, is called passive
portfolio management.

3. Discretionary Portfolio Management: The Portfolio Management in which the investor places
the fund with the manager, and authorizes him to invest them as per his discretion, on the
investor’s behalf. The portfolio manager looks after all the investment needs, documentation,
etc.

4. Non-Discretionary Portfolio Management: Non-discretionary portfolio management is one in

which the portfolio managers gives advice to the investor or client, who can accept or reject it.

The outcome, i.e. profit received or loss sustained belongs to the investor himself, whereas the service
provider receives an adequate consideration in the form of fee for rendering services.

# Write down the activities involved in portfolio management.

Answer:

 Selection of securities in which the amount is to be invested.

 Creation of appropriate portfolio, with the securities chosen for investment.

 Making decision regarding the proportion of various securities in the portfolio, to make it an
ideal portfolio for the concerned investor.

# What does portfolio managers do? /Process of portfolio management.

Answer:

1. Security Analysis: It is the first stage of portfolio creation process, which involves
assessing the risk and return factors of individual securities, along with their correlation.
 2. Portfolio Analysis: After determining the securities for investment and the risk involved,
a number of portfolios can be created out of them, which are called as feasible
portfolios.
3. Portfolio Selection: Out of all the feasible portfolios, the optimal portfolio, that matches
the risk appetite, is selected.
4. Portfolio Revision: Once the optimal portfolio is selected, the portfolio manager keeps a
close watch on the portfolio, to make sure that it remains optimal in the coming time, in
order to earn good returns.
5. Portfolio Evaluation: In this phase, the performance of the portfolio is assessed over the
stipulated period, concerning the quantitative measurement of the return obtained and risk
involved in the portfolio, for the whole term of the investment.

# Investment.

Investing is the act of allocating funds to an asset or committing capital to an endeavor (a business,
project, real estate, etc.), with the expectation of generating an income or profit. In colloquial terms,
investing can also mean putting in time or effort - not just money - into something with a long-term
benefit, such as an education.

# What are the various objectives of investment?

Answer:

An investment is made because it serves some objective for an investor. Depending on the life stage and
risk appetite of the investor, there are three main objectives of investment: safety, growth and income.
Every investor invests with a specific objective in mind, and each investment has its own unique set of
benefits and risks. Let us understand these objectives in detail.

Safety

While no investment option is completely safe, there are products that are preferred by investors who
are risk averse. Some individuals invest with an objective of keeping their money safe, irrespective of the
rate of return they receive on their capital. Such near-safe products include fixed deposits, savings
accounts, government bonds, etc.

Growth

While safety is an important objective for many investors, a majority of them invest to receive capital
gains, which means that they want the invested amount to grow. There are several options in the
market that offer this benefit. These include stocks, mutual funds, gold, property, commodities, etc. It is
important to note that capital gains attract taxes, the percentage of which varies according to the
number of years of investment.

Income

Some individuals invest with the objective of generating a second source of income. Consequently, they
invest in products that offer returns regularly like bank fixed deposits, corporate and government bonds,
etc.

Other objectives
While the aforementioned objectives are the most common ones among investors today, some other
objectives include:

 Tax-exemptions:
Some people invest their money in various financial products solely for reducing their tax
liability. Some products offer tax exemptions while many offer tax benefits on long-term profits.

 Liquidity:
Many investment options are not liquid. This means they cannot be sold and converted into
cash instantly. However, some people prefer investing in options that can be used during
emergencies. Such liquid instruments include stock, money market instruments and exchange-
traded funds, to name a few.

# Write down the types of investment.

Answer:

Stocks - A buyer of a company's stock becomes a fractional owner of that company. Owners of a
company's stock are known as its shareholders, and can participate in its growth and success through
appreciation in the stock price and regular dividends paid out of the company's profits.

Bonds - Bonds are debt obligations of entities such as governments, municipalities and corporations.
Buying a bond implies that you hold a share of an entity's debt, and are entitled to receive periodic
interest payments and the return of the bond's face value when it matures.

Funds - Funds are pooled instruments managed by investment managers that enable investors to invest
in stocks, bonds, preferred shares, commodities etc. The two most common types of funds are mutual
funds and exchange-traded funds or ETFs. Mutual funds do not trade on an exchange and are valued at
the end of the trading day; ETFs trade on stock exchanges and like stocks, are valued constantly
throughout the trading day.

Investment trusts: Trusts are another type of pooled investment, with Real Estate Investment Trusts
(REITs) the most popular in this category. REITs invest in commercial or residential properties and pay
regular distributions to their investors from the rental income received from these properties. REITs
trade on stock exchanges and thus offer their investors the advantage of instant liquidity.

Alternative Investments - This category includes hedge funds and private equity. Hedge funds are so
called because they can hedge their investment bets by going long and short stocks and other
investments. Private equity enables companies to raise capital without going public. Hedge funds and
private equity were typically only available to affluent investors deemed "accredited investors" who met
certain income and net worth requirements.

Options and Derivatives - Derivatives are financial instruments that derive their value from another
instrument such as a stock or index. An option is a popular derivative that gives the buyer the right but
not the obligation to buy or sell a security at a fixed price within a specific time period. Derivatives
usually employ leverage, making them a high-risk, high-reward proposition.

Commodities - Commodities include metals, oil, grain and animal products, as well as financial
instruments and currencies. They can either be traded through commodity futures - which are
agreements to buy or sell a specific quantity of a commodity at a specified price on a particular future
date - or ETFs. Commodities can be used for hedging risk or for speculative purposes.

# What is speculation

Speculation refers to the act of conducting a financial transaction that has substantial risk of losing value
but also holds the expectation of a significant gain.

 Without the prospect of substantial gains, there would be little motivation to engage in
speculation.

 Consider whether speculation depends on the nature of the asset, expected duration of the
holding period and/or amount of applied leverage.

Basis for Investment Speculation

Comparison
Meaning The purchase of an asset with the Speculation is an act of conducting a risky
hope of getting returns is called financial transaction, in the hope of
investment. substantial profit.
Basis for Fundamental factors, i.e. Hearsay, technical charts and market
decision performance of the company. psychology.

Time horizon Longer term Short term

Risk involved Moderate risk High risk

Intent to Changes in value Changes in prices

profit
Expected rate Modest rate of return High rate of return
of return

Funds An investor uses his own funds. A speculator uses borrowed funds.
Income Stable Uncertain and Erratic

Behavior of Conservative and Cautious Daring and Careless

participants

# What is risk?

Answer: Risk implies the extent to which any chosen action or an inaction that may lead to a loss or
some unwanted outcome. The notion implies that a choice may have an influence on the outcome that
exists or has existed.

In finance, different types of risk can be classified under two main groups 1) systematic risk 2)
unsystematic risk.

# Describe the systematic risk.

Answer:

Systematic risk is due to the influence of external factors on an organization. Such factors are normally
uncontrollable from an organization's point of view. It is a macro in nature as it affects a large number of
organizations operating under a similar stream or same domain. It cannot be planned by the
organization.

1) Interest rate risk: Interest-rate risk arises due to variability in the interest rates from time to
time. It particularly affects debt securities as they carry the fixed rate of interest.
2) Market risk: Market risk is associated with consistent fluctuations seen in the trading price of
any particular shares or securities. That is, it arises due to rise or fall in the trading price of listed
shares or securities in the stock market.
3) Purchasing power or inflationary risk: Purchasing power risk is also known as inflation risk. It is
so, since it emanates (originates) from the fact that it affects a purchasing power adversely. It is
not desirable to invest in securities during an inflationary period.

# Describe the unsystematic risk.

Answer:

Unsystematic risk is due to the influence of internal factors prevailing within an organization. Such
factors are normally controllable from an organization's point of view. It is a micro in nature as it affects
only a particular organization. It can be planned, so that necessary actions can be taken by the
organization to mitigate (reduce the effect of) the risk.

1) Business or liquidity risk: Business risk is also known as liquidity risk. It is so, since it emanates
(originates) from the sale and purchase of securities affected by business cycles, technological
changes, etc.
2) Financial or credit risk: Financial risk is also known as credit risk. It arises due to change in the
capital structure of the organization. The capital structure mainly comprises of three ways by
which funds are sourced for the projects.
3) Operational risk: Operational risks are the business process risks failing due to human errors.
This risk will change from industry to industry. It occurs due to breakdowns in the internal
procedures, people, policies and systems.

# Write down the gist of risk.

1. Every organization must properly group the types of risk under two main broad
categories viz.,
a. Systematic risk and
b. Unsystematic risk.
2. Systematic risk is uncontrollable, and the organization has to suffer from the same.
However, an organization can reduce its impact, to a certain extent, by properly planning
the risk attached to the project.
3. Unsystematic risk is controllable, and the organization shall try to mitigate the adverse
consequences of the same by proper and prompt planning.

# Measurement of risk.
Answer: Risk in investment is associated with return. The risk of an investment cannot be
measured without reference to return. The return, in turn, depends on the cash inflows to be
received from the investment. Let us consider the purchase of a share. While purchasing an
equity share, an investor expects to receive future dividends declared by the company. In
addition, he expects to receive the selling price when the share is finally sold.

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# What are the factors affecting the performance of the company?

Answer:
# What is economy analysis?

Answer:

#$ Write down the economic variables that an investor must monitor as part of his fundamental
analysis.

answer:
# Write down the difference between fundamental analysis and technical analysis.

Answer:

# What is share valuation?

Answer:
# What is one year holding period?

Answer:

# What is multiple year holding period?

Answer:

# What is constant growth model?

Answer:
# Multiple growth model.

Answer:
# What is bond?

Answer:

# Write down the characteristics of bond.

Answer:
# Write down the categories of bond.

Answer:
# Write down the types of bond returns.

Answer: