Portfolio revision involves changing the mix of securities in a portfolio to ensure it remains optimal over time as financial markets change. The objectives of revision are maximizing returns and minimizing risk. Revision is needed due to changes in markets or an investor's situation. Constraints on revision include transaction costs, taxes on capital gains if securities are sold too quickly, statutory regulations for large institutional investors, and the inherent difficulty of the revision process.

1. Portfolio Revision: Meaning,
Objectives, Need, Strategies

2. • what is meant by portfolio revision
• The financial markets are continually changing. In
this dynamic environment, a portfolio that was
optimal when constructed may not continue to be
optimal with the passage of time.
• It may have to be revised periodically so as to
ensure that it continues to be optimal.
• A portfolio is a mix of securities selected from a
vast universe of securities.

3. Meaning of Portfolio Revision
• Portfolio revision involves changing the existing mix of
securities.
• This may be effected either by changing the securities
currently included in the portfolio or by altering the
proportion of funds invested in the securities.
• New securities may be added to the portfolio or some
o the existing securities may be removed from the
portfolio. Portfolio revision thus leads to purchases and
sales of securities.

4. objective
• The objective of portfolio revision is the same as
the objective of portfolio selection like
maximizing the return for a given level of risk or
minimizing the risk for a given level of return.
• The ultimate aim of portfolio revision is the
maximization of returns and minimization of risk

5. Need for Portfolio Revision
• The primary factor necessitating portfolio
revision is changes in the financial markets
since the creation of the portfolio.
•
• The need for portfolio revisions may arise
some because of some investor-related factors
also. These factors may be listed as:

6. • Availability of additional funds for investment.
• Change in risk tolerance.
• Change in investment goals.
• Need to liquidate a part of the portfolio to provide funds
for some alternative use.
• The portfolio needs to be revised to accommodate the
changes in the investor’s position.
•
• Thus, the need for portfolio revision may arise from
changes in the financial market or changes in then
investors’ position, namely his financial status and
preferences.

7. Constraints in Portfolio Revision
• Portfolio revision or adjustment necessitates
purchases and sale of securities.
•
• The practice of portfolio adjustment involving
purchase and sale of securities gives rise to
certain problems that act as constraints in
portfolio revision. Some of these are as
follows:

8. 1. Transaction Cost
• Buying and selling securities involve transaction
costs such as commission and brokerage.
•
• Frequent buying and selling of securities for
portfolio revision may push up transaction costs
thereby reducing the gains from portfolio
revision.
•
• Hence, the transaction costs involved in portfolio
revision may act as a constraint to the timely
revision of the portfolio

9. Taxes
• .
• Tax is payable on the capital gains arising from sales of securities.
•
• Usually, long term capital gains are taxed at a lower rate than short term
capital gains. To qualify as long term capital gain, a security must be held
by an investor for a period of not less than 12 months before the sale.
•
• Frequent sale of securities in the course of periodic portfolio revision or
adjustments will result in short term capital gains which would be taxed at
a higher rate compared to long term capital gains.
•
• The higher tax on short term capital gains may act as a constraint to
frequent portfolio revisions.
•

10. 3. Statutory Stipulation
• s
• The largest portfolios in every country are managed by
investment companies and mutual funds.
•
• These institutional investors are normally governed by
certain statutory stipulations regarding their
investment activity.
•
• These stipulations often act as constraints in timely
portfolio revision.
•

11. 4. Intrinsic Difficulty
• Portfolio revision is a difficult and time-
consuming exercise.
•
• The methodology to be followed for portfolio
revision is also not clearly established.
•
• Different approaches may be adopted for the
purpose. The difficulty of carrying out revision
itself may act as a constraint to portfolio revision.