Class Report For Investment Management

Class Report for Investment Management
Portfolio Management and Portfolio Construction
Harish B BC0190016
Vasanth S BC0190050
Nirmal K.U. BC0190028
An Introduction to Portfolio Management:
What is Portfolio Management?
Portfolio management is described as the art and science of selecting the best possible
interment tools from a given set of options, it must be chosen from the client’s personal
preferences and other factors such as meeting the long-term financial objectives and risk
tolerance of a client, his company or any such institution.
Objectives:
In order to achieve a person's major financial goals, portfolio management aims to establish
and administer a customized long-term investing plan. This entails choosing an investment
portfolio that aligns with the individual's goals, responsibilities, and risk tolerance.
Additionally, it entails periodically assessing the portfolio's actual performance to make sure
it is on track and to make any necessary revisions.
Key takeaways of a proper management:
 It involves the overseeing selection and choosing of assets such as stocks, bonds,
cash that meet long-term financial goals and the risk-tolerance of an investor.
 Proactive portfolio management involves strategic sale and purchase of stocks and
other assets to be better the performance with respect to a broader market.
 Passive on the other hand seeks to match the returns of the market by mimicking the
makeup of an index or indices.
 Investors can choose from a wide array of strategies to aggressively pursue their
profit goals, improve capital or both.
 A good portfolio management will have clear, long term goals, confirming the same
with the respective tax-management authorities of the country, risk tolerance and
willingness to study various investment opportunities.
Active v Passive portfolio management:
Passive management:
Is defined as the type of management where someone ‘sets it and forgets it’, it is typically
described as a long-term strategy, investors in this case generally invest in more than form of
exchange-trade funds, this is referred to as indexing or index-investing, people who use this
methodology general employ modern portfolio theory to optimize the mix.
Active management:
On the other hand, this form of management involves attempting to beat the performance of
an index by proactively participating in the trade of stocks and similar assets, close-ended
funds are generally managed using this method of management, there are several qualitative
and quantitative methodologies used during active management.
Portfolio Management: Discretionary v non-discretionary:
This method of portfolio management generally tends to dictate what a third-party may be
allowed to do during a person’s management process of his portfolio.
This type of management generally comes into question whenever the investor employs an
individual stock-broker to manage his portfolio, if the investor only wants the broker to
execute trade that the investor has explicitly approved then he must apply for non-
discretionary portfolio management. The broker will advice on strategy and suggest various
investment movements but will not be able to take any action without the discretion of the
investor.
Some investor would prefer conferring the discretionary power with their stock broker, the
broker will purchase and sell stocks without the approval of the investor, the advisor however
will always act in a fiduciary capacity to act in the best interest of the investor.
Key-elements of Portfolio Management:
1. Asset allocation:
The key is to have a mixture of investment options keeping mind long-terms gains, which
involves stocks, bonds and equivalents of cash which include but are not limited to certificate
of deposit, there are several other often referred to as alternate modes of investment such as
real estate, derivates and cryptocurrency.
This process is based on the knowledge that different asset classes move in different ways,
with some being more volatile than others. A variety of assets offers protection from risk and
balance. Aggressive investors allocate a larger portion of their portfolios to riskier assets like
growth stocks. A cautious investor's portfolio is skewed toward more reliable assets like
bonds and blue-chip companies.
2. Diversification:
When it comes to investment, the only thing that is clear is that it is difficult to reliably
identify people who lose and people who gain. Putting together an investing basket that offers
a wide range of exposure within a given asset class is the wise course of action.
This process entails distributing the benefit and risk of specific equities within or between
asset classes. Diversification aims to reduce volatility at any particular time while capturing
the returns of all sectors over time, as it is difficult to predict which subset of an asset class or
sector will perform better than another.
3. Rebalancing:
This method is used to periodically, usually in a year, restore a portfolio to its initial target
allocation. When the market swings knock the asset mix off balance, this is done to put it
back in place.
Rebalancing typically entails selling expensive securities and investing the proceeds in out-
of-favor, lower-priced securities. Rebalancing once a year keeps the portfolio in line with the
original risk/return profile while giving the investor the chance to grow and seize gains in
high-potential sectors.
An introduction to portfolio construction:
What is portfolio construction?
In order to prepare for the portfolio investment, you need to carefully review all of your
current investments, debts, and assets. You can now specify your short- and long-term
financial objectives. You must choose the level of risk and volatility you are ready to accept
as well as the profits you hope to achieve in order to create a risk-return profile. The
benchmarks for monitoring portfolio performance can now be established.
Developing a diversified and well-structured asset allocation strategy is the next step after
establishing a risk-return profile. Now, modify the plan to account for major life events, such
as retirement or home ownership. The investor must decide between passive management,
which could consist of ETFs that track particular indexes, and active management, which
could include mutual funds that are professionally managed.
What are the three steps of portfolio construction?
1. Setting of objectives: Individual investor can employ the help of financial

professionals; they can work together to create a plan to fulfill their short and long-
term goals.
2. Understanding risk tolerance: employed financial professionals must understand the
needs of the client and inquire how comfortable he is to change with respect to
investment returns, the professional must ensure that the client is intentional about
risks being taken.
3. Minimizing portfolio costs: the final step of the professional is to ensure that he
reduces the possible costs that are incurred by designing the portfolio in such a
manner, early planning is necessary.
Other important points to be taken into consideration:
a. Choosing the right style of investment: Financial advisors frequently must choose
whether to focus on value, growth, or a balanced approach when it comes to
investing, as current events have a lot of influence over the market. Depending on the
client and the state of the market, balancing a client's investment portfolio is a very
difficult task. Before deciding on an investment plan, advisors must take the time to
fully comprehend the expectations, difficulties, and objectives of each customer.
b. Balancing between domestic and international market: It is a crucial to keep in

mind that global equities aren't a homogeneous group; Europe, Asia, and other
regions, as well as the nations and companies that inhabit them, are all susceptible to
various forces and hazards, which may or may not make investing in those areas
suitable for your customers. Determining which foreign equities are a suitable fit the
clients' portfolios can be a laborious task. Time-pressed advisors may find themselves
tempted to simply stick with the Indian-based assets they are most comfortable with.
c. Building a portfolio to meet short and long-goal objectives: Furthermore, it is

imperative to establish a portfolio that maintains a healthy balance of liquidity to
prevent the clients from being forced to commit to long-term investing objectives. For
instance, real estate might provide a sizable payment in the future, but selling it
quickly and for full value is difficult if your client needs money right away for an
urgent medical situation. Furthermore, bonds have a substantially lower payout than
certain long-term investments, despite being simple to cash in quickly for immediate
needs. In addition to listening to their customers, financial advisors should also be
aware of their goals, time horizon, and true risk tolerance. From this point on, they
can create investment portfolios that address those requirements and provide a
realistic budget.

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Class Report for Investment Management

Portfolio Management and Portfolio Construction

An Introduction to Portfolio Management:

What is Portfolio Management?

Key takeaways of a proper management:

Portfolio Management: Discretionary v non-discretionary:

Key-elements of Portfolio Management:

An introduction to portfolio construction:

What is portfolio construction?

What are the three steps of portfolio construction?

1. Setting of objectives: Individual investor can employ the help of financial

Other important points to be taken into consideration:

b. Balancing between domestic and international market: It is a crucial to keep in

c. Building a portfolio to meet short and long-goal objectives: Furthermore, it is

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