PORTFOLIO MANAGEMENT
Today's topic is "Portfolio Management", and in this article, we will know – What is Portfolio Management. Types of Portfolio Management. What is the purpose of Portfolio Management? And also know how important portfolio management is for an investor. Let's talk first.
WHAT IS THE PORTFOLIO MANAGEMENT?
Before understanding Portfolio Management, let us pay attention to the meaning of these two words once separately.
What is Portfolio?
A portfolio in relation to investment means different types of investment and total investment. A portfolio is made up of the sum total of investments in different financial asset classes.
For example, an investor invests his investment in the different asset classes, where 30% is in fixed deposit, 30% is in a mutual fund, and 40% in the stock market. In this way, the total amount invested in different asset classes can be called the investment portfolio of the investor.
It can also be said that –
The meaning of an investment portfolio is a planned technique, using which the investor invests his investment in different asset classes. And by controlling the risk in his investment, he wants to get the desired benefit from the investment. It is worth noting that the main reason for investing in different investment options by the investor is to reduce the risks of investment. Now let's see that 'What is Management?'.
What is Management?
Simply put, the meaning of management is to use the available resources to accomplish a certain goal in such a way that a pre-determined goal can be accomplished. Now let's see - "what is portfolio management?" .
WHAT IS PORTFOLIO MANAGEMENT?
Portfolio Management is the technique that helps an investor to invest in some better way out of the different available investment options for the objectives already specified by him. So that the investor can get the desired rate of return and that investment can be controlled by RISK CONTROL.
Types Of Portfolio Management
Portfolio management can be broadly divided into 4 types. In which are:
Purpose of Portfolio Management
Talking about the main objective behind doing portfolio management, it is something like this-
Capital Security of Investment
The main objective of portfolio management is to protect the capital invested so that the capital remains safe.
Continuity of profit from investment
The second main objective of portfolio management is to keep getting consistent benefits from the investment. If your portfolio management is good then you can book profit by selling shares in any growing company whenever you want.
Liquidity
The third and main objective of portfolio management is that we can convert our investments into cash in the shortest possible time. That is, whenever he wants to sell his investment, the customer who buys it can get it immediately and can convert his investment into cash.
Sometimes we cannot sell our shares as per our wish due to low liquidity in a particular company of a sector. Because of this, either you will not be able to book profit by selling the shares at the right time or due to not selling the shares at the right time at the time of loss, your loss will become more.
Benefits of Power of Compounding
The fourth and main objective of portfolio management is that we can increase our wealth very much by using the power of compounding on our investments. And get better benefits of long term investment.
When you invest for a long time period (like 5 years, 10 years, 15 years etc.) then you can take advantage of compounding of your investment.
Diversify Benefits
Not all areas of investment are always profitable. What is in profit today may go in loss tomorrow. And the area of investment which is in loss today can also be profitable at any time.
In such a situation, we need such a tool, so that we can invest our investments in such different areas, and we should not invest in any one asset class.
For example, suppose banking sector, metals sector are performing well now, but it does not mean that these sectors will perform similarly in future. It may be that technology companies, artificial intelligence, space tourism etc. will do well in future because most of these areas are still in their initial stages. If your portfolio is diversified and you invest in new sectors as well, then you will be able to take advantage of the company of emerging sectors to come.
Tax saving
Another major objective of portfolio management is that we can earn better returns on our investments. And can take advantage of various types of tax saving schemes being given by the government.
Importance of Portfolio Management
How important is portfolio management for an investor?
In the field of investment, we get different amount of profit from different investment options. And the amount of profit there is, the same amount is also RISK in that investment.
For example, if we can get 20% CAGR profit from the stock market, then the RISK in investing in the stock market also becomes very high.
On the other hand in Bank Fixed Deposit we get almost complete protection of our investment, but if we talk about profit from Fixed Deposit investment then we can get profit of only 6 - 7% CAGR.
In this way, every investor wants that he/she can earn the best profit with less risk. For this reason, we need to manage the portfolio of our investments so that with the help of portfolio management, investors can control their RISK. Invest in the available investment options in such a way that he gets maximum profit with minimum RISK. And that is why portfolio management is given great importance in the field of investment.
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