Portfolio Management

Reviewed by Apoorva | Updated on Sep 28, 2020

Introduction

Portfolio management is the process of making decisions about matching investments to objectives, investment mix and policy, asset allocation for individuals and institutions, and balancing risk against performance. Portfolio management is all about determining strengths, weaknesses, opportunities, and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other trade-offs encountered in the attempt to maximize return at a given appetite for risk.

Understanding Portfolio Management

The terms "portfolio management" and "financial planning" are not synonyms; they are not the same. Portfolio management is the act of creating and maintaining an investment account. Whereas, financial planning is the process of developing financial goals and setting up a plan of action to achieve them. Professionally licensed portfolio managers are responsible for portfolio management on behalf of others, while individuals may plan their own investments and build their own portfolio. The end goal of portfolio management is to maximize the investments expected return, given an appropriate level of risk exposure.

Factors to consider before you invest

It is recommended that investors go for a SIP instead of a lump sum investment. One should start investing early and enjoy the returns with the power of compounding.

When the markets are down, don't withdraw or stop the SIP amount. Instead, invest in some more assets at a cheaper price that will average the cost of assets. Also, this is similar to buying units at a higher price and selling at a lower price, it will turn the notional loss into an actual one.

Have a longer holding period while investing in equity-oriented assets. Taxes are lower on long-term capital gains as compared to short-term. Also, long-term investment helps in accumulating huge wealth.

In the present scenario, mutual funds are the most common assets used by the investors to earmark their hard money in India. Before investing in mutual funds, investors should understand the mutual fund types and their features. The mutual funds are divided on the basis of asset classes, structure, investment goals, and risk profile.

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