Portfolio Management

INVESTMENT AND
PORTFOLIO MANAGEMENT
Course Instructor:
Shagufta Saleem Shaikh
Batch: BBA 2k22 1
What is Portfolio?
 A Portfolio refers to a collection of investment
tools such as stocks, shares, mutual funds, bonds,
cash and so on depending on the investor’s
income, budget and convenient time frame.
“Don’t Put all your eggs in one basket”

Portfolio help in reducing risk without sacrificing return.
Portfolio Management:
 Portfolio management is the art of selecting the right
investment policy for the individuals in terms of minimum
risk and maximum return.
 It refers to managing an individual’s investments in the form
of bonds, shares, cash, mutual funds etc so that he earns the
maximum profits within the stipulated time frame.
 In plain terms, it is managing money of an individual under
expert guidance of portfolio managers.
Need for Portfolio Management:
1. Portfolio management presents the best investment plan
to the individuals as per their income, budget, age and
ability to undertake risks.
2. Portfolio management minimizes the risks involved in

investing and also increases the chance of making profits.
3. Portfolio management enables the portfolio managers to

provide customized investment solutions to clients as per
their needs and requirements.
Portfolio Management:
Portfolio management deals with the
analysis of individual securities as well as with the
theory and practices of optimally combining securities
into portfolios.
Portfolio management is a process
encompassing many activities aim at optimizing the
investment of ones funds. Five phases can be identified
in this process.
1. Securities analysis
2. Portfolio analysis
3. Portfolio selection
4. Portfolio revision
5. Portfolio evaluation
Security Analysis:
Security analysis is the phase of the

portfolio management process. This step consists of
examining the risk-return characteristics of
individual securities.
Portfolio Analysis:
The process of blending together the
broad asset classes so as to obtain optimum return with
minimum risk is called portfolio analysis/construction.
Portfolio Risk & Return:
Expected return on portfolio: The expected
return on a portfolio is simply the weighted average of the
expected returns of the individual securities in the given portfolio.
Rp =WaRa+WbRb+……………….+WnRn
OR
n
Rp =∑WiRi
i =1
Where, Rp =Expected Rate of Return in a Portfolio,
Wi =Proportion of total investment invested in ith asset,
Ri =Expected Rate of return as ith Securities,
n =Number of securities in a given portfolio.
Portfolio Selection:
The process of finding the optimal portfolio is
described as portfolio selection. It provides highest
return at a given level of risk.
Optimal portfolio selection :
1)Establishing efficient portfolios (minimum risk for a

given expected return)comprising broad of asset lends
itself to the mean –variance methodology by Markowitz.
2)Determining efficient portfolios within an asset class
can be achieved with the single index model proposed by
sharp.
Capital Asset Pricing Model:
Relationship between risk and return establish by security
market line known as capital asset pricing model.
i) Extension of portfolio theory of Markowitz.
ii) Derives the relationship between the expected return
and risk of individual securities and portfolios.
Assumption of CAPM:
a)Investors make their investment decision on the basis of
risk-return assessment measured in term of expected returns and
standard deviation of returns.
b)The purchase / sales of a security can be undertaken in
infinitely divisible unit.
c)The investor can sell short any amount of any shares.
Capital Market Line: Efficient frontier line formed by the action of all
investors mixing the market portfolio with the risk free asset is known as
capital market line.
Rm- Rf
Ri =Rf + σe
σm
Where,
R =Risk / Return
e =Effective portfolio
Ri =Return on riskily portfolio
Rf =The risk free borrowing rate which would be the same as risk
free lending rate, namely the return on the riskless asset.
Security Market Line: A straight line joining expected return and beta of
securities is called security market line. The relationship between the expected
return and risk for all securities and all portfolios can be determined
graphically .
Ri = Rf +ᵝi(Rm –Rf)
M
Rm
Rf
Expected return of security =Risk free return +ᵝ(risk premium into market)
ᵝ
Pricing Of Securities In Capital: The capital asset pricing model can be
used for evaluating the price of securities.
[(P1-P.)+D1]
Ri =
P.
Where, P. =Current market price
P1 =Estimated market of 1 year
D1 =Anticipated dividend for 1 year
Portfolio Revision
 In portfolio management ,maximum emphasis

is placed on portfolio analysis and selection
which leads to the construction of the optimal
portfolio.
 Need of Revision
Availability of additional funds for investment.
Change in risk tolerance
Change in the investment goals
Portfolio Evaluation: It is a evaluation of the performance
of the portfolio. It essentially comprises the functions,
1)Performance measurement
2)Performance evaluation
Need Of Evaluation
i)Self evaluation
ii)Evaluation of portfolio Managers
iii)Evaluation of Mutual Funds
Mutual Funds:
Definition: According to Frank Reilly
defines mutual funds as “financial intermediaries
which bring a wide variety within the reach of the
most modest of investors”
Characteristics Of Mutual Funds :
i)The ownership is in the hands of the

investors who have pooled in their funds.
ii) The pool of funds is invested in a
portfolio of marketable
investments.
iii)It is managed by a team of
investment professionals and other
services provider
Structure Of Mutual Funds:
a)Sponsor
b)Trustees
c)Custodians
d)Asset management company
Types/Classification Of Mutual:
a)General classification
i)Open-ended scheme
ii)Close ended scheme
iii)Interval scheme
b)Broad classification
i)Equity funds
ii)Money market
iii)Debt/ Income funds
Risk Associated With Mutual Funds
i) Market risk ii) Inflation risk

iii) Credit risk iv) Interest rate risk
v) political risk
Advantage of mutual funds:

Transparency
Research
Tax benefits
Flexibility
liquidity
THANK YOU. . . .

Portfolio Management

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INVESTMENT AND

“Don’t Put all your eggs in one basket”

2. Portfolio management minimizes the risks involved in

3. Portfolio management enables the portfolio managers to

Security analysis is the phase of the

Optimal portfolio selection :

1)Establishing efficient portfolios (minimum risk for a

 In portfolio management ,maximum emphasis

i)The ownership is in the hands of the

i) Market risk ii) Inflation risk

Advantage of mutual funds:

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