What is Portfolio Management? Definition, types, and benefits

Managing financial investments is a crucial task for both individuals and organizations alike. It requires a solid understanding of the financial assets and identifying strategies to manage them effectively to maximize returns. This is where portfolio management comes in. Simply put, it is working the investments of an individual client or those of an organization to help them achieve their respective financial goals. This blog discusses in detail the Portfolio Management meaning and its importance for clients to meet their long-term financial objectives.

Portfolio Management meaning 

Let us begin by understanding the definition of Portfolio Management. It refers to the process of choosing, prioritizing, and managing a collection of investments or financial assets/projects for individual or organizational clients to help them meet their financial objectives. The aim here is to maximize returns or profits on the investments within a specified period of time. Certain individuals are capable of handling well the role of portfolio management, meaning they are equipped with thorough knowledge and understanding in the domain to make informed decisions regarding buying and selling of financial assets. 

For others, however, the role of a Portfolio Manager is rather crucial and comes in handy. They assist clients (individuals and organizations alike) in making informed investment decisions concerning their financial assets or funds. They are responsible for designing and executing investment processes and strategies to help clients achieve their financial goals in the long run. 

Portfolio management, in general, aims to meet certain key objectives, some of which are defined below:

1. Minimize risks for investors 
2. Maximize returns on investment for individuals and organizations
3. Maintain financial liquidity 
4. Help achieve long-term financial goals for the investors
5. Expand the investment base across varied financial assets 
6. Ensure consistent growth of investment returns in the long run 

The next section details the Portfolio Management strategies overview for your better understanding.

Types of Portfolio Management

Listed below are the various types of Portfolio Management strategies that Portfolio Managers execute to help their clients meet their desired objectives:

• Active portfolio management: This is one of the key methods that feature in the Portfolio Management strategies overview. Active Portfolio Management is more hands-on and the Portfolio Manager is responsible for actively overseeing and making appropriate adjustments to the portfolio, working in the role of a financial advisor. 

• Passive portfolio management: Contrary to active portfolio management, passive portfolio management does not involve the regular purchase and sale of financial securities. It is also a low-cost strategy and thus appears attractive to budget-friendly clients. 

• Discretionary portfolio management: This is yet another key technique in the Portfolio Management strategies overview where the Portfolio Manager is entrusted completely with responsibility for making investment decisions for the investor. In this case, the manager is responsible for creating a portfolio on the basis of the time frame, personal goals, and risk tolerance of the investor (client). 

• Non-discretionary portfolio management: This is the last of the many types of Portfolio Management strategies. Unlike discretionary portfolio management, in this case, the investor holds the final decision-making power but the Portfolio Manager still plays the advisory role, offering financial guidance and assistance to the investor, as necessary. However, the manager must get the final approval from the investor.

Benefits of portfolio management 

Portfolio Management plays an integral role for every individual and business organization alike. Listed below are some of the top benefits of Portfolio Management:

1. Effective risk management: The importance of Portfolio Management can be determined by its ability to reduce and prevent risks related to investments. A well-managed investment portfolio helps investors assess potential risks and take timely corrective measures to prevent them.

2. Professional guidance: Portfolio Managers are experts in their domain, offering guided assistance to investors with limited experience in the field. Through their professional services, investors are better able to make informed investment decisions.

3. Diversified investments: This is one of the top benefits of Portfolio Management. It helps investors diversify their financial assets by lowering risks and optimizing returns or profits. Investors are better able to spread their investments across various sectors and classes, thus maximizing returns for optimal growth.

Role of a Portfolio Manager

We discussed the importance of Portfolio Management in the above section. Portfolio Managers play a key role in offering expert guidance to investors, helping them make informed investment decisions, reducing potential risks, and maximizing returns. Let us further understand the role of a Portfolio Manager.

• They inform their clients about the various investment tools available in the market, thus helping them make informed decisions on which investment plan would be most suitable for them.

• They are responsible for designing customized investment solutions for their clients as per their specific financial needs.

• A Portfolio Manager offers professional expertise and guidance to clients from time to time, enabling them to choose the best investment plan to increase their financial asset base.

The average annual salary of a Portfolio Manager in India is approx INR 18,80,000 per annum.

Conclusion  

The importance of Portfolio Management cannot be stressed enough for any individual or business organization. The expertise and knowledge that these professionals possess in their domain can be of immense help to make informed investment decisions and enhance the value of your financial assets.

Take the first step to a rewarding career in Portfolio Management with an online MCom degree from Sikkim Manipal University. The institution offers this course on the reputed Online Manipal platform, allowing students to choose Portfolio Management as one of the electives in the program. Sikkim Manipal is an A+ NAAC-accredited university and all its online degrees are entitled by the UGC.