When we get ourselves to think about a balanced life what do we visualise?
We see ourselves as positive individuals taking care of ourselves, investing in our strengths, maintaining a bold mental attitude to tide over the life’s tough moments. It’s a wonderful picture of our life…the feeling of security is heart-warming. How about the investments that we make, giving us the same kind of fulfilment and security? A well balanced and powerful portfolio gives us the financial security and satisfaction. That is the beauty of Portfolio management.
About Portfolio Management:
A portfolio is a bouquet of different investment options like stocks, shares, mutual funds. Managing and making them work for us is an art. Portfolio Management thus is the blend of art and science of making prudent decisions on investments.
We aspire to build a portfolio which compounds our hard earned money.
Portfolio management seen in another way is smart selection, and nurturing, of the bonds, shares and mutual funds, and giving them continued attention to grow and prosper.
Significance of Portfolio Management:
Portfolio management sets a direction for the best investment strategy based on age, income and risk appetite of the individual. The key focus of Portfolio Management is risk minimisation, and customisation, based on the individual’s needs and choices.
Elements of portfolio management
The key elements of portfolio management are asset allocation, diversification and rebalancing.
- Asset allocation: The long term mix of assets of stable and volatile investments seeks to optimise the risk/return profile of an investor.
- Diversification: It is the spreading of risks and rewards within an asset class, and seeks to capture the returns of all sectors over time, with reduced volatility.
- Rebalancing: It is used to return the portfolio to its original target allocation at periodic intervals.
Objectives of Portfolio management:
The objectives of Portfolio management is to invest in securities to maximise returns, and minimise risks. A good portfolio has multiple objectives, and aims at achieving a balance among them.
- Stable current returns: After all the investments are in place, the portfolio should yield a steady current income closely matching the opportunity costs of the funds of investors.
2. Marketability: The sign of a good portfolio is its liquidity, or easy marketability. It is profitable to invest in companies which are listed on major stock exchanges.
3.Tax planning: A good portfolio aims at tax planning, thereby offering the investor a favourable tax shelter, containing income tax and capital gains tax.
4.Appreciation in the value of capital: A good portfolio should appreciate in value in order to protect the investor during inflation. Thus a portfolio must contain certain investments which tend to appreciate in value after adjusting for inflation.
5.Liquidity: The portfolio should ensure that there are enough funds available to take care of investor’s liquidity requirements.
Types of Portfolios:
Here are five types of portfolios based on the investing strategies.
- Aggressive Portfolio: This includes stocks with a high-risk, high-reward proposition
2. Defensive Portfolio: This is a conservative method of portfolio allocation and management, geared towards minimising the risk of losing capital.
3. The Income portfolio: This portfolio focuses on making money through dividends by generating positive cash flow.
4. The speculative portfolio: This is similar to a gamble as it carries more risk than other portfolios
5. Hybrid Portfolio: This is about venturing into other investments like bonds, real estate and commodities.
Performing a SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) of an investment avenue helps us to understand and gain insight into workings of the company to help us in investments.
When we wish to invest in one particular company, we would also like to know about its different aspects, to determine whether the investment would be profitable for us .So how would we perform SWOT analysis before we invest? Let us see here-
- Strengths: It is crucial to understand the strengths of a company such as management, services and customers before investing.
2. Weaknesses: This is also vital as it tells about the potential downfalls of the company. Studying the annual report of the company helps us to gauge the weaknesses while making the decision about investing.
3. Opportunities: Some of the opportunities to be considered are internal and external growth opportunities and social trends.
4. Threats: Every investor has to consider the threats to his investments. Some common threats are litigation, Government legislation. and direct competition.
Building a healthy portfolio, and making it win for us, requires a sound knowledge about the investment strategies. So the reputed Stock Market Institute (SMI) in Bangalore has designed a variety of enriching courses to impart knowledge about trading strategies.