As per the definition portfolio is collection of financial investments

like stocks, bonds, commodities, cash, and cash equivalents, as well

as any asset which have financial value.

Now again we should know why it is important to create portfolio

The main aim of portfolio is to reduce risk and increase return.

So DIVERSIFICATION is the key concept of portfolio management.

The term DIVERFICATION MEANS investing across different asset

class.

Diversification is a risk management strategy that mixes a wide

variety of investments within a portfolio. A diversified portfolio
contains a mix of distinct asset types and investment vehicles in an
attempt at limiting exposure to any single asset or risk.

AFTER THIS BACKGROUND WE SHOULD KNOW WHAT THIS

PORTFOLIO MANAGEMENT IS the process of managing individuals’
investments so that they maximise their earnings within a given time
horizon. Furthermore, such practices ensure that the capital
invested by individuals is not exposed to too much market risk.

IT ACT as A SWOT analysis of different investment avenues.

The service of portfolio management is Tailored made. As different

investor have different risk apatite the portfolio for all the investor
will be different.

In order to know the optimal portfolio of an investor we need to

draw the efficient frontier of different portfolio returns and the
indifference curve for investor the point of intersection between
these two curve will be the optimal portfolio of the investor
( optimal portfolio yieald to best combination of risk and return
for a given investor)

All the process of portfolio management is for risk reduction.

There are two types of risk

1- Systematic risk
2- Un systematic risk

Systematic risk known as market risk which is to be faced by each

industry/ company. It can’t be diversified, and are related with
external factors

On the other hand Unsystematic risk is diversifiable in nature and

are related with internal factor of a company/ industry
(company specific)

The AMC are reducing this unsystematic risk only.

The risk is there because of holding an asset, if we will

simultaneously buy and sell a asset there will be no risk involved, so
as the holding period increases the risk also increases. At the same
time return also increases with risk.

In this way the

Liquid fund Less than 1 month Very low risk

Ultra short term 1 month to 9 month Low risk
fund
Short term fund 6 month to 3 years Low risk
Corporate bond fund 1 year to 3 years Medium risk
Long term bond fund More than 3 years very too high risk
less than 3 years Medium to high risk
Long term More than 3 years Medium to high risk
government security less than 3 years Low risk
fund
MIP with less than More than 3 yrs. very too high risk
25% equity less than 3 years Medium to high risk

OBJECTIVE OF PORTFOLIO MANAGEMENT

 Capital appreciation- increasing the capital or net worth of

investor

 Maximising returns on investment- Return on investment

pointing towards north

 To improve the overall proficiency of the portfolio

 Risk optimisation- reducing the risk or investing at minimum

variance portfolio

 Allocating resources optimally

 Ensuring flexibility of portfolio- Any time it can be revised as

per market situation

 Protecting earnings against market risks- By Portfolio

Insurance

TYPES OF PORTFOLIO MANAGEMENT

Active Portfolio Management- The goal of an active portfolio
manager is to outperform the market in terms of returns. Those that
invest in this way are often contrarian in their thinking. When stocks
are cheap, active managers purchase them, and when they rise
beyond the standard, they sell them.

Passive Portfolio Management- The passive investment technique is

the polar opposite of active management. The efficient market
hypothesis is held by those who adhere to this idea. The idea is that a
company's fundamentals will always be reflected in its stock price. As
a result, the passive manager chooses to invest in index funds with a
low turnover rate but high long-term value.

Discretionary Portfolio Management- In this particular

management type, the portfolio managers are entrusted with the
authority to invest as per their discretion on investors’ behalf.
Based on investors’ goals and risk appetite, the manager may
choose whichever investment strategy they deem suitable.

Non-Discretionary Portfolio Management- Under this

management, the managers provide advice on investment choices.
It is up to investors whether to accept the advice or reject it.
Financial experts often recommended investors to weigh in the
merit of professional portfolio managers’ advice before
disregarding them entirely.

WAY OF PORTFOLIO MANAGEMENT

Asset allocation

Essentially, it is the process wherein investors put money in both

volatile and non-volatile assets in such a way that helps generate
substantial returns at minimum risk. Financial experts suggest that
asset allocation must be aligned as per investor’s financial goals and
risk appetite.

Diversification

The said method ensures that an investors’ portfolio is well-

balanced and diversified across different investment avenues. On
doing so, investors can revamp their collection significantly by
achieving a perfect blend of risk and reward. This, in turn, helps to
cushion risks and generates risk-adjusted returns over time.

Rebalancing

Rebalancing is considered essential for improving the profit-

generating aspect of an investment portfolio. It helps investors to
rebalance the ratio of portfolio components to yield higher returns
at minimal loss. Financial experts suggest rebalancing an investment
portfolio regularly to align it with the prevailing market and
requirements.

For a capable investment portfolio, investors

Step Identification of
need to identify suitable objectives which can be
1– objectives
either stable returns or capital appreciation.

Step Estimating the capital Expected returns and associated risks are
2– market analysed to take necessary steps.

Step Decisions about asset To generate earnings at minimal risk, sound

3– allocation decisions must be made about the suitable ratio
 or asset combination.

Step Formulating suitable Strategies must be developed after factoring in

4– portfolio strategies investment horizon and risk exposure.

Selecting of profitable The profitability of assets is analysed by

Step
investment and factoring in their fundamentals, credibility,
5–
securities liquidity, etc.

Step The planned portfolio is put to action by

Implementing portfolio
6– investing in profitable investment avenues.

Step Evaluating and revising A portfolio is evaluated and revised regularly to

7– the portfolio evaluate its efficiency.

Rebalancing the
Step Portfolio’s composition is rebalanced frequently
composition of the
8– to maximise earnings.
portfolio

6 Expert Investment Portfolios

(1) Warren Buffett - The 90/10 Portfolio

This portfolio follows the instructions that the great investor Warren Buffett
has apparently set out in his will for his wife's trust. He outlined this plan on
page 20 of his 2013 letter to Berkshire Hathaway Shareholders. The allocation
is as follows

90% low cost S&P 500 tracker

10% short-term government bonds

The basic principle here is to "own a cross-section of businesses that in

aggregate are bound to do well," for Buffett the easiest way to do that is the
S&P 500, which also happens to be very cheap to own via ETFs.

(2) Paul Merriman - Ultimate Buy and Hold Strategy

Paul Merriman is a successful investor, who know focuses his time on

educating people on how to invest through his foundation. He has a number of
variations of his portfolios.

 10% S&P 500

 10% U.S. Large Cap Value

 10% U.S. Small Cap Blend

 10% U.S. Small Cap Value

 10% U.S. REITs

 10% International Large Cap Blend

 10% International Large Cap Value

 10% International Small Cap Blend

 10% International Small Cap Value

 10% Emerging Markets

(3) Ivy League Endowments-

As per this portfolio our investment portfolio should have investment in

 35% U.S. Equity

 28% Bonds

 15% Foreign Equity

 11% Commodities
  11% Real Estate

(4) Coffeehouse Portfolio-

As Proposed by Bill, author and investment adviser. He stresses that this may
not be the right portfolio for you, but many take it as a starting point for a well-
balanced portfolio.

 40% Fixed Income

 10% Large Cap Blend

 10% Large Cap Value

 10% Small Cap Blend

 10% Small Cap Value

 10% International

 10% REITs

(5)Bill Bernstein's No Brainer Portfolio-

In his book, the Intelligent Asset Allocator, Bill examines academic research
and historical performance to arrive at a relatively simple to implement
portfolio that he expects to perform well for the long-term.

25% Bonds

25% European Stocks

25% U.S. Small Cap Stocks

25% S&P 500

 (6) Harry Browne's Permanent Portfolio-

Sometime described as a fail-safe or bullet proof portfolio. Bowne's portfolio is

designed to hold up well in any economic environment and be a simple
portfolio to implement.

In his portfolio Each asset class has a role to play: the long-term bonds will
perform well during deflation; stocks will do well during times of economic
growth; Treasury Bills will hold up during recessions and gold is helpful during
times of inflation.

His portfolio allocation is

 25% U.S. long-term Treasury bonds

 25% U.S. Treasury Bills

 25% U.S. Total Stock Market

 25% Gold