In corporate level, Portfolio Management is defined as a process for the successful delivery of the portfolio of an organization. A portfolio includes entire projects and investment programs. It is a helpful tool to determine opportunities, strengths, weaknesses, and threats to maximize the returns and minimize the risk. It follows a simple principle of maximizing returns within a specific time frame.
Why is Portfolio Management important?
Portfolio management is important because it is one of the best ways to identify and select the best investment strategy. It is purely based on an individual's income, age, risk-taking capacity, and investment budget. The portfolio management tool is designed in such a way that it is customized as per the preference and needs of an investor. It analyses the needs and budget of the investor and suggests the best policy for them.
Types of Portfolio Management -
1. Active portfolio management
Active management is defined as a process that actively manages a portfolio of individual holdings. The portfolio manager actively trades securities in order to earn profit for his investor. He keeps a track of the political landscape and market trends and uses the information to make investment decisions.
2. Passive portfolio management
Here, a portfolio manager creates a fixed portfolio. it is a long-term strategy to generate higher returns.
3. Discretionary portfolio management
Discretionary portfolio management is a process where the funds of an investor are placed with the portfolio manager. It is the manager who decides to manage investments as per his discretion on behalf of the investor.
4. Non-discretionary portfolio management
Here, the portfolio manager gives investment advice to the investor, who either agrees or disagrees with his discretion.
Benefits of Portfolio Management -
1. It avoids disastrous outcomes
If an individual invests in a single stock and it fails, then it will have a great impact on his investment. Portfolio Management avoids such disasters by diversifying the investments.
2. Maximize returns
With the help of Portfolio Management, an investor can structure his investments by which he can maximize the returns even with limited funds.
3. Avoid risks
The security market is highly volatile and the chance of loss is equally possible. By using portfolio management, you can reduce the downside risk via diversification.