A Portfolio Management refers to the science of analyzing the strengths, weaknesses, opportunities and threats for performing wide range of activities related to the one’s portfolio for maximizing the return at a given risk. It helps in making selection of Debt Vs Equity, Growth Vs Safety, and various other tradeoffs.
Major tasks involved with Portfolio Management are as follows.
- Taking decisions about investment mix and policy
- Matching investments to objectives
- Asset allocation for individuals and institution
- Balancing risk against performance
There are basically two types of portfolio management in case of mutual and exchange-traded funds including passive and active.
- Passive management involves tracking of the market index or index investing.
- Active management involves active management of a fund’s portfolio by manager or team of managers who take research based investment decisions and decisions on individual holdings.
Portfolio:In terms of mutual fund industry, a portfolio is built by buying additional bonds, mutual funds, stocks, or other investments. If a person owns more than one security, he has an investment portfolio. The main target of the portfolio owner is to increase value of portfolio by selecting investments that yield good returns.
As per the modern portfolio theory, a diversified portfolio that includes different types or classes of securities; reduces the investment risk. It is because any one of the security may yield strong returns in any economic climate.
Facts about Portfolio
- There are many investment vehicles in a portfolio.
- Building a portfolio involves making wide range of decisions regarding buying or selling of stocks, bonds, or other financial instruments. Also, one needs to make decision regarding the quantity and timing of the buy and sell.
- Portfolio Management is goal-driven and target oriented.
- There are inherent risks involved in the managing a portfolio.
The basics and ideas of Investment Portfolio Management are also applied to portfolio management in other industry sectors.
Application Portfolio Management: It involves management of complete group or subset of software applications in a portfolio. These applications are considered as investments as they involve development (or acquisition) costs and maintenance costs.
The decisions regarding making investments in modifying the existing application or purchasing
new software applications make up an important part of application portfolio management.
Product Portfolio Management: The product portfolio management involves grouping of major products that are developed and sold by businesses into (logical) portfolios. These products are organized according to major line-of-business or business segment.
The management team actively manages the product portfolios by taking decisions regarding the development of new products, modifying existing products or discontinue any other products. The addition of new products helps in diversifying the investments and investment risks.
Project Portfolio Management: It is also referred as an initiative portfolio management where initiative portfolio involves a defined beginning and end; precise and limited collection of desired results or work products; and management team for executing the initiative and utilising the resources. A number of initiatives that supports a product, product line or business segment, are grouped into a portfolio by managers.