Before Planning for Investment Portfolio Management know some basic knowledge!

Category: Finance

Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, to meet specified investment goals for the benefit of investors. The term asset management is often used to refer to the management of investment funds. Construction of Portfolio: A portfolio is a combination of securities. The portfolio is constructed in such a manner as to meet the investor’s goals and objectives. Portfolio management specifically deals with security analysis, analysis and selection of portfolio, revision of portfolio, and evaluation of portfolio. Investment portfolio management involves the management of an investor's portfolio of financial assets, with the goal of achieving maximum returns while minimizing risk. It involves the careful selection and allocation of investments across different asset classes, such as stocks, bonds, mutual funds, and real estate, based on the investor's goals, risk tolerance, and investment horizon. OBJECTIVES OF INVESTMENT: RETURN: Investors expect a good rate of return from their investments. Return from an investment may be in terms of revenue return or income (interest or dividend) and/or in terms of capital return (capital gain i.e., difference between the selling price and the purchasing price). The net return is the sum of revenue return and capital return. RISK: Variation in return i.e., the chance that the actual return from an investment would differ from its expected return is referred to as the risk. Measuring risk is important because minimizing risk and maximizing return are interrelated objectives. LIQUIDITY: Liquidity, with reference to investments, means that the investment is saleable or 4 convertibles into cash without loss of money and without loss of time. Different types of investments offer different types of liquidity. Most of the financial assets provide a high degree of liquidity. Shares and mutual fund units can be easily sold at the prevailing prices. An investor has to build a portfolio containing a good proportion of investments that have a relatively high degree of liquidity. SAFETY: An investor should take care that the amount of investment is safe. The safety of an investment depends upon several factors such as the economic conditions, the organization where the investment is made, the earnings stability of that organization, etc. TAX BENEFITS: Investments differ with respect to the tax treatment of initial investment, return from investment, and redemption proceeds. For example, investment in Public Provident Fund (PPF) has tax benefits in respect of all three characteristics. Equity Shares entail exemption from taxability of dividend income but the transactions of sale and purchase are subject to Securities Transaction Tax or Tax on Capital gains. Sometimes, the tax treatment depends upon the type of the investor. Overall, effective investment portfolio management necessitates a strategic and disciplined approach built on a deep comprehension of the needs of the investor and the investment environment.