What is a Portfolio?
A portfolio can be characterized as various tools of investment comprising of one or more of the asset classes like stocks, bonds, mutual funds, cash consolidated together to form a diversified portfolio. It is shaped as such to minimize the risk through allocation and diversification.
What is Portfolio Management?
Portfolio Management is a mix of art and science of building an investment portfolio by taking appropriate decision for investing and allocation in various investment avenues. Essentially put it, somebody has given you their hard earned money and you have to assist them for getting good returns on the capital within desired risk levels.
A Portfolio Manager is essentially a person with deep understanding of markets and investment along with a good 10+ years of experience in research or investment management.Normally, Portfolio Managers are supported by a team of research analyst performing fundamental and technical analysis on various stocks, industries or economic indicators.
Selecting a stock/scrip for investment includes a point by point SWOT analysis ( analysing strengths, weakness, opportunities and threats) of a particular investment.
Classification of Portfolio Management
There are broadly two different types of classification of portfolio management.
First, basis the authority of decision given by an investor to Portfolio Manager. Accordingly, it is classified as Discretionary or Non Discretionary portfolio.
Discretionary Portfolio Management
In this structure, the individual authorize the Portfolio Manager invest his/her money on his own, without any deal by deal approval. The investor will be given a report on periodic basis about the portfolio performance and existing investments.
Non Discretionary Portfolio Management
In this structure a Portfolio Manager does the research and identify an investment opportunity and seek customer consent for investment. The Portfolio is built basis the customer liking and ownus majorly lies on Customer himself
Another Classification is done according to the style of investing. This classifies the portfolios as Active and Passive portfolio management
Active Portfolio Management
In an Active Portfolio Management, the Portfolio Manager invests in various active shares with active monitoring of each. Almost every day a call is taken between buy, sell or hold for any given investment.
Passive Portfolio Management
In Passive Portfolio Management a Portfolio Manager invests in a particular fund or Etf or may solely follow a particular index. The returns of such Portfolio matches closely with performance of fund that it follows with no active entry or exit on frequent basis. Such portfolios normally tracks indices like Nifty, Sensex,Gold ETF etc.
Objectives of Portfolio Management
The broad objectives of Portfolio Management are as follows
It gives a customize way of managing Individual portfolio with not straight jacket approach.
Their is an ample choice of managing portfolio with respect to individual needs as per their investment objectives, risk appetite and tenor of investment.
It clearly identifies customer requirement like grey list as per their employer, taxation, liquidity requirement and manages money accordingly.
Is it a suitable financial product for you
Portfolio management is apt for various classes of societies fulfilling below mentioned one or more of the criteria.
Investible surplus of 50 lacs or more as it is a regulatory requirement.
People or Investors with Limited knowledge or Limited time such as Corporate leaders, Professionals, businessman, retired, Government Officers, may opt for Portfolio Management without leaving any advantage of mutual fund but getting benefit of personalized attention.
Seasoned Investors who wishes to diversify their investing styles or portfolio among different portfolio managers.
What are the Requirements for a Portfolio Management
To invest through Portfolio Management, one needs to fill up a KYC form with standard requirement like ID proof, Address proof and Bank cancelled cheque. Mostly PMS companies prefer to use their own DP for Demat account merely for their operational convenience.
A cheque or Demat Portfolio of Rs. 50 lakhs or more that needs to be managed.
Agreement on terms of management is required to signed along with the commercial terms agreed between Portfolio Manager and client.
What is the process of Portfolio Management
Once the agreement is in place, verifying the fee structure, time frame, risk exposure and the kind whether discretionary or non discretionary is decided.
After all this is in place, the fund manager plays his role. The portfolio is structured on the basis of the agreed terms and then churns the portfolio at regular intervals.
The portfolio report along with detailed analysis and report of the performance of the portfolio is periodically sent to the investors.
There are certain back office software that are used by the managers to keep a track of the performance, corporate actions and other developments in the portfolio.
The fund manager takes decisions based upon the output given by inhouse research team on the basis of the fundamental and technical research for the company, Industry and even the economy.
What are the Benefits of Professional Management by seasoned Fund Managers
- Diversification for risk aversion due to allocation
- Active portfolio management keeping the track of all scrips in portfolio and even other market related developments that may affect portfolio positively or adversely.
- Consistent efforts to build and showcase performance
- Periodic review of portfolio along with the detailed analysis
- Choice from Multi-strategy portfolio and shift to the best available alternative
Facility of Partial withdrawal provided the overall fund value does not fall below the regulatory requirements.
