Portfolio Management

Category: Education

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DEFINITION The process of managing the assets of a mutual fund, including choosing and monitoring appropriate investments and allocating funds accordingly.

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MEANING 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 is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international

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History of Portfolio Management McFarlan is the first person who planned the approach of the portfolio management in the investment concerns. Later various personalities developed this portfolio management. Portfolio Management is the responsibility of the senior member of the team in the organization. They are also called as the productive team of the company.

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Objectives of Portfolio Management Stable Current Return:- Once investment safety is guaranteed, the portfolio should yield a steady current income. The current returns should at least match the opportunity cost of the funds of the investor. Marketability:- A good portfolio consists of investment, which can be marketed without difficulty. If there are too many unlisted or inactive shares in your portfolio, you will face problems in encasing them, and switching from one investment to another.

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CONTD… 3. Tax Planning:- Since taxation is an important variable in total planning, a good portfolio should enable its owner to enjoy a favorable tax shelter. The portfolio should be developed considering not only income tax, but capital gains tax, and gift tax, as well. Appreciation in the value of capital:- A good portfolio should appreciate in value in order to protect the investor from any erosion in purchasing power due to inflation. In other words, a balanced portfolio must consist of certain investments, which tend to appreciate in real value after adjusting for inflation.

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CONTD… 5. Liquidity:- The portfolio should ensure that there are enough funds available at short notice to take care of the investor’s liquidity requirements. It is desirable to keep a line of credit from a bank for use in case it becomes necessary to participate in right issues, or for any other personal needs. 6. Safety of the investment:- Investment safety or minimization of risks is one of the important objectives. There are many types of risks, which are associated with investment in equity stocks, including super stocks. You can try and minimize the overall risk or bring it to an acceptable level by developing a balanced and efficient portfolio. A good portfolio of growth stocks satisfies the entire objectives outline above.

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CONTD…. 1} Discretionary:  Under these services, the choice as well as the timings of the investment decisions rest solely with the Portfolio Manager. 2} Non Discretionary: Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the timings of the investment decisions rest solely with the Investor. However the execution of trade is done by the portfolio manager.

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CONTD… 3}Advisory:  Under these services, the portfolio manager only suggests the investment ideas. The choice as well as the execution of the investment decisions rest solely with the Investor. Note: In India majority of PMS providers offer Discretionary Services.

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BASIC PRINCIPLES OF PORTFOLIO MANAGEMENT There are two basic principles for effective portfolio management which are given below:- 1. Effective investment planning for the investment in securities by considering the following factors:- a. Fiscal, financial and monetary policies of the Govt. of India and theReserve Bank of India. b. Industrial and economic environment and its impact on industry. c. Prospect in terms of prospective technological changes, competition in the market, capacity utilization with industry and demand prospects etc.

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CONTD…. 2) Constant review of investment:- Its require to review the investment in securities and to continue the selling and purchasing of investment in more profitable manner. For this purpose they have to carry the following analysis: a. To assess the quality of the management of the companies in which investment has been made or proposed to be made. b. To assess the financial and trend analysis of companies balance sheet and profit loss Accounts to identify the optimum capital structure and better performance for the purpose of withholding the investment from poor companies. c. To analysis the security market and its trend in continuous basis to arrive at a conclusion as to whether the securities already in possession should be disinvested and new securities be purchased. If so the timing for investment or dis-investment is also revealed.

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What is Portfolio Management Services (PMS)? Portfolio Management Services (PMS) is an investment portfolio in stocks, fixed income, debt, cash, structured products and other individual securities, managed by a professional money manager that can potentially be tailored to meet specific investment objectives. Who can offer PMS? PMS can be offered only by entities having specific SEBI registration for rendering portfolio management services. Currently in India PMS is offered primarily by asset management companies (AMCs) and brokerage houses.

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PMS and Mutual Funds: The Differences

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CASE STUDY About Kotak Securities Portfolio Management:- Kotak Securities is one of India’s oldest portfolio management companies with over a decade of experience. It is also one of the largest, with Assets under Management of over Rs. 3300 Crores. At Kotak, measure our success through the success of our clients. Whatever be your requirement, we will tailor your stock market portfolio to your specific investment need. At the very base of a financially sound portfolio lies the identification of one's investment objective. They help you identify your investment objectives and also outline important requirements like liquidity, capital appreciation, current income, time span and fiscal implications and then suggest an appropriate scheme.

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CONTD…. How do you benefit from our Portfolio Management Service? An Investment Relationship Manager will ensure that you receive all the services related to your investment needs. A dedicated website and a customer services desk allows you to keep a tab on your portfolio’s performance. Your portfolio of investments in stock market is tailored after a thorough research backed by the expertise from the Kotak Securities Research team. An experienced team of portfolio managers ensure your portfolio is tracked, monitored and optimised at all times. The personalised services also translates into zero paper work and all your financial statements will be e-mailed.

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