This document discusses portfolio management strategies, including active and passive strategies. Active strategies aim to outperform benchmarks by exploiting market inefficiencies. They involve frequent trading but carry more risk. Passive strategies track market indices to achieve market returns at low cost. They provide diversification and transparency but limit choice. The key is understanding each approach and choosing one aligned with an investor's goals, market conditions, and tolerance for risk.

1. PORTFOLIO MANAGEMENT
• Portfolio management is the art and science
of making decisions about investment mix and
policy, matching investments to objectives,
asset allocation and balancing risk against
asset allocation and balancing risk against
performance.

2. PORTFOLIO MANAGEMENT
STRATEGIES
• Portfolio Management strategies refer to the
approaches that are applied for the efficient
portfolio management in order to generate
the highest possible returns at lowest possible
the highest possible returns at lowest possible
risks.

3. TYPES OF PORTFOLIO MANAGEMENT
STRATEGIES
• Active portfolio management strategies
• Passive portfolio management strategies

4. Active Portfolio Management strategy
• It refers to a portfolio management strategy that
involves making precise investments for outperforming
an investment benchmark index.
• Active management involves excessive buying and
selling of funds which are collectively aimed towards
selling of funds which are collectively aimed towards
beating the market.
• The portfolio manager that follows the active
management strategy, exploits the market
inefficiencies by buying, under – valued securities or by
short selling over – valued securities. Any of these
procedures can be used alone or in combination Style

5. Style of Stock Selection – for Active
strategy
• Top Down Approach : In this approach ,
managers observes the market as a whole and
decide about the industries and sectors that are
expected to perform well in the ongoing
economic cycle.
economic cycle.
• Bottom Up Approach : In this approach , the
market conditions and expected trends are
ignored and the evaluation of the companies are
based on the strength of their product line ,
financial statements or any other criteria.

6. Pros and Cons of Active Strategies
Advantages:
• It utilizes the experience of the fund manager, who can
apply his skills to ensure high alpha* (*excessive return
of the investment against the Market returns)
Disadvantages:
Disadvantages:
• There is a lot of risk associated with this strategy
• Funds are quite expensive
• Sometimes the fund managers disappoint the investors
by not able to outperform the index or benchmark.

7. Passive Portfolio Management
Strategy

8. Styles of stock selection – for Passive
strategy
• Efficient Market Theory: This theory relies on the fact
that the information that affects the market is
immediately available and processed by all investors.
Thus , such information is always considered in the
evaluation of the market prices.
• Indexing theory: According to this theory , the index
• Indexing theory: According to this theory , the index
funds are used for taking the advantages of efficient
market theory and for creating a portfolio that
impersonate a specific index. The index funds can offer
benefits over the actively managed funds because they
have lower than average expense ratios and
transaction costs.

9. Pros and Cons of Passive Strategies
Advantages:
• This is a great investment avenue for small investors
who can stay invested and eventually patient over the
long term.
• There is complete transparency in the process since the
• There is complete transparency in the process since the
indices are mapped and investments are made, no
other alterations to the portfolio are done.
Disadvantages:
• The only and biggest disadvantage with passive
management is the limit of choice with this style,
especially in India.

10. How to choose between active management and passive management?
• What is the expectation as an investor?
• What is the market offering?
• Do the investor prefer a safe and diversified approach or a concentrated
one?
• Are the investor looking forward to a balanced approach?
Conclusion:
• Active or passive, you must possess a basic understanding of the ideology
behind these investment styles
behind these investment styles
• While active management comes loaded with the experience of a fund
manager, there are always some risks associated with it and the
consultation does not come for free.
• On the other hand, in the passive style of management, the growth is
gradual and takes its own good time.
• Whatever the choice, be sure of the fact that it falls in par with the
financial goals.