The document discusses portfolio management. It defines portfolio management as the process of managing investments to maximize earnings while minimizing risk. It describes key concepts in portfolio management including types (active, passive, discretionary, non-discretionary), analysis, selection, optimization. It also discusses models for portfolio selection and optimization like the Markowitz model. It notes the advantages of portfolio management include improved communication, consistency, alignment with strategy, and faster decision-making.

1. Investment Management
M.COM I SEM I
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2. MODULE I : (2CREDITS)
Unit1:Portfolio Management –
An Introduction
• A) Portfolio Management – An Introduction Investment -
Meaning, Characteristics, Objectives, Investment V/s
Speculation, Investment V/s Gambling and Types of Investors
Portfolio Management – Meaning, Evolution, Phases, Role of
Portfolio Managers, Advantages of Portfolio Management.
Investment Environment in India and factors conducive for
investment in India.
• B) Portfolio Analysis and Selection Portfolio Analysis –
Meaning and its Components, Calculation of Expected Return
and Risk, Calculation of Covariance, Risk – Return Trade off.
Portfolio Selection – Meaning, Feasible Set of Portfolios,
Efficient Set of Portfolios, Selection of Optimal Portfolio,
Markowitz Model, Limitations of Markowitz Model,
Measuring Security Return and Portfolio Return and Risk
under Single Index Model and Multi Index Model
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3. Portfolio Management
• Portfolio management is the selection, prioritisation
and control of an organisation's programmes and
projects, in line with its strategic objectives and
capacity to deliver.
• The goal is to balance the implementation of change
initiatives and the maintenance of business-as-usual,
while optimising return on investment.
• Portfolio management involves overseeing a set of
investments, including securities, bonds, exchange-
traded funds, mutual funds, cryptocurrencies, etc., on
a personal or professional level.
• Its purpose is to help investors achieve their long-term
financial goals and manage their liquidity needs and
risk tolerance.
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4. • Portfolio management’s meaning can be
explained as the process of managing
individuals’ investments so that they
maximise their earnings within a given
time horizon. Furthermore, such practices
ensure that the capital invested by
individuals is not exposed to too much
market risk.
• The entire process is based on the ability
to make sound decisions. Typically, such a
decision relates to – achieving a profitable
investment mix, allocating assets as per
risk and financial goals and diversifying
resources to combat capital erosion.
• Primarily, portfolio management serves as
a SWOT analysis of different investment
avenues with investors’ goals against their
risk appetite. In turn, it helps to generate
substantial earnings and protect such
earnings against risks.
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5. • The fundamental objective of portfolio management is
to help select best investment options as per one’s
income, age, time horizon and risk appetite.
• Some of the core objectives of portfolio management
are as follows –
• Capital appreciation
• Maximising returns on investment
• To improve the overall proficiency of the portfolio
• Risk optimisation
• Allocating resources optimally
• Ensuring flexibility of portfolio
• Protecting earnings against market risks
• Nonetheless, to make the most of portfolio
management, investors should opt for a management
type that suits their investment pattern.
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6. Types of Portfolio Management
• Active Portfolio Management
• This is a type of portfolio management
that seeks to produce higher returns than
the market's benchmark. It involves
intricate and aggressive strategies such
as short-term investments, regular buying
and selling, timing the markets, and more.
• Successfully managing a portfolio takes
research, diligence, careful planning, and
ongoing monitoring. Furthermore, it also
requires a great deal of knowledge of the
securities involved, including their
behavior in different circumstances.
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7. • Passive Portfolio Management
• This type of investment
management attempts to match an
index's or benchmark's performance.
Passive portfolio strategies enable
investors to reap the rewards from
long-term investing in low-cost index
funds and mutual funds that track
popular benchmarks.
• Although this may not always yield
outstanding returns, it can still offer a
steady return over time with less risk
than active trading strategies.
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8. • Discretionary Portfolio Management
• This type of portfolio management
allows professionals to make
decisions about a client's holdings
without the need for ongoing
authorization from the investor.
• It is ideal for clients who value the
expertise of a registered investment
advisor and want someone else to
manage specific aspects of their
finances.
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9. • Non-Discretionary
Management
• This approach requires the
investor to be actively
involved in every decision,
including what investments
are bought and sold. The
manager only provides
advice and guidance on
investments to buy or sell
but does not have the final
say.
• Investors can fully control
their portfolio and risk
exposure and make
decisions based on their
knowledge and experience.
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10. • Investment Environment in
India
• Factors conducive for
investment in India.
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11. MODULE I
• B) Portfolio Analysis and Selection Portfolio
Analysis – Meaning and its Components,
Calculation of Expected Return and Risk,
Calculation of Covariance, Risk – Return
Trade off. Portfolio Selection – Meaning,
Feasible Set of Portfolios, Efficient Set of
Portfolios, Selection of Optimal Portfolio,
Markowitz Model, Limitations of Markowitz
Model, Measuring Security Return and
Portfolio Return and Risk under Single Index
Model and Multi Index Model
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12. Roles and Responsibilities
of a Portfolio Manager
• A portfolio manager is one who helps an
individual invest in the best available investment
plans for guaranteed returns in the future.
• A portfolio manager plays a pivotal role in
deciding the best investment plan for an
individual as per his income, age as well as ability
to undertake risks.
• Investment is essential for every earning
individual. One must keep aside some amount of
his/her income for tough times. Unavoidable
circumstances might arise anytime, and one
needs to have sufficient funds to overcome the
same.
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13. § A portfolio manager is responsible for making an
individual aware of the various investment tools available
in the market and benefits associated with each plan. Make an
individual realize why he actually needs to invest and which
plan would be the best for him.
§ A portfolio manager is responsible for designing customized
investment solutions for the clients. No two individuals can
have the same financial needs. It is essential for the portfolio
manager to first analyze the background of his client. Know an
individual’s earnings and his capacity to invest. Sit with your
client and understand his financial needs and requirement.
§ A portfolio manager must keep himself abreast with the
latest changes in the financial market. Suggest the best plan
for your client with minimum risks involved and maximum
returns. Make him understand the investment plans and the
risks involved with each plan in a jargon free language.
•
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14. § A portfolio manager ought to be unbiased and a thorough professional.
Don’t always look for your commissions or money. It is your responsibility to
guide your client and help him choose the best investment plan.
§ A portfolio manager must design tailor made investment solutions for
individuals which guarantee maximum returns and benefits within a stipulated
time frame. It is the portfolio manager’s duty to suggest the individual where
to invest and where not to invest? Keep a check on the market fluctuations
and guide the individual accordingly.
§ A portfolio manager needs to be a good decision maker. He should be
prompt enough to finalize the best financial plan for an individual and invest
on his behalf.
•
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15. § Communicate with your client on a
regular basis. A portfolio manager plays a
major role in setting financial goal of an
individual. Be accessible to your clients.
Never ignore them. Remember you have
the responsibility of putting their hard-
earned money into something which
would benefit them in the long run.
§ Be patient with your clients. You might
need to meet them twice or even thrice
to explain them all the investment plans,
benefits, maturity period, terms and
conditions, risks involved and so on.
Don’t ever get hyper with them.
§ Never sign any important document
on your client’s behalf. Never pressurize
your client for any plan. It is his money,
and he has all the rights to select the best
plan for himself.
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16. Advantages of Portfolio
Management
• Improved communication
• Investment decisions and the
resulting budgets can be shared with
the rest of the organization to ensure
everyone is on the same page about
priorities. The right teams can
quickly get up to speed. Monitoring
and tracking can be set up to ensure
the right people are involved at the
right time.
• Teams also have access to a single
source of data, so you avoid
miscommunication or people
working from outdated information.
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17. • Improved consistency
• Portfolio management approaches ensure that
there is consistency between the budgeting process,
the strategic plan and the action being taken. You
can easily align overall corporate goals with progress
and allocate funding to the right initiatives..
• Single view of current projects
• One of the biggest benefits of portfolio
management is simply having a single view of all the
ongoing or planned projects. That comprehensive
list provides the prioritization for all effort across
the business. It can be shared widely so that
everyone understands current priorities and how
they should be spending their time.
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18. • Alignment with strategy
• A huge competitive advantage for
businesses using portfolio management is
being able to align ongoing work with
strategy – and notice where initiatives are
pulling teams away from that focus.
• Criteria-based decision-making
• A portfolio way of working encourages
decisions to be made based on considered,
useful criteria. Arbitrate between projects
using criteria like:
• Risk exposure
• Contribution to business goals
• Alignment to strategy
• Profitability or returns.
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19. • An optimized workforce
• There are only so many hours in the
day and you want to make sure that
project teams are spending their time
on the work that matters.
• Visibility of the project portfolio and
the associated data that goes with it,
like timesheets and progress reports,
helps leaders see where time is being
spent. You can then optimize the use
of human resources to ensure they
are focused on priorities.
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20. • Faster decision-making
• Finally, another benefit of using portfolio
management is that you can make decisions
more quickly. When all the relevant data is
centralized and available within project
management software tools, it’s easy to access
what you need.
• You can cut the time taken to make decisions
by streamlining the way data is accessed by
various committees and key stakeholders.
Speed up decision-making by reducing the
time it takes to prepare papers for
consideration.
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21. COMPONENTS OF PORTFOLIO ANALYSIS
• https://www.financestrategists.com/wealth-
management/investment-management/portfolio-
analytics/#:~:text=The%20main%20components%20of%20portfolio,ri
sk%20analysis%20(specify%20market%20risk%2C
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22. PORTFOLIO
SELECTION
• Portfolio selection concerns the problem of
finding the most attractive stocks and the
determination of their proportions in a
portfolio, which is essentially a matter of
arbitration between the risk and the return.
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23. FEASIBLE PORTFOLIO ANALYSIS
• A feasible portfolio is a group of investments picked from the available
alternatives within an investor’s capital resources limits, investment goals, and
tolerance for risk. Put simply, it is a portfolio an investor can build up, given the
assets he or she has available.
• Each feasible portfolio is not always an efficient portfolio and has its own risk and
reward profile. Investors have the option to choose between a range of feasible
portfolios.
• Managing a portfolio is about strengths, weaknesses, and opportunities, so there
are downsides in no matter what type of portfolio investors decide to manage. It
all comes down to risk balancing and allocation.
• According to nasdaq.com, a feasible portfolio is:
• “A portfolio that an investor can construct, given the assets available.”
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24. Selection of
Optimal
Portfolio
• An optimal portfolio is one
that minimizes your risk for a given
level of return or maximizes your
return for a given level of risk.
What it means is that risk and
return cannot be seen in isolation.
You need to take on higher risk to
earn higher returns.
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25. • When you read something like Optimal
Portfolio, the first thing that would
strike you will be a highly esoteric
financial concept that is out of bounds
to the understanding of most people.
• However, that is not necessarily the
case. The concept of optimal portfolio
is extremely simple and something
that we all apply in our daily lives. Of
course, we do it intuitively without
realizing it.
•
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27. • The outer limits of optimal portfolio
• So, what do you understand by optimal portfolio? What are the
characteristics of an optimal portfolio and how to create an optimal
portfolio? But, first what is the concept of optimal portfolio all about?
An optimal portfolio is one that minimizes your risk for a given level of
return or maximizes your return for a given level of risk. What it means
is that risk and return cannot be seen in isolation.
• You need to take on higher risk to earn higher returns. If you look at the
graphic above, there is a clear positive relationship between risk and
return.
• Higher the risk taken higher is the return expectation and lower the risk
taken; the lower is the return expectation. When you are selecting
an investment portfolio for yourself, you always try to ensure that your
portfolio lies along this frontier.
• If your portfolio is below the curve, then it means you are not getting
adequate return for the risk taken. If it is above the curve then it means
you are getting more returns than justified by risk. That kind of
situation is not sustainable and you need to be wary of such portfolios.
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28. Markowitz Model
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The Markowitz model is a method of maximizing
returns within a calculated risk. It is also called the
Markowitz portfolio theory or modern portfolio theory.
This model facilitates practical application; many new
investors use this technique in capital markets.

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The Markowitz model is an investing strategy. Amateur investors use it to
maximize gross returns within a sustainable risk bracket.
The Harry Markowitz Model was first published in the journal of finance in 1952.
In 1990, Harry Markowitz won the Nobel Prize for his work on modern portfolio
theory.
The limitations of Markowitz model include overreliance on historical data,
irrelevant assumptions, and the use of mean-variance instead of potential risks.
Markowitz’s assumptions become irrelevant; this is especially the case with
volatile markets.

30. • The Markowitz model of portfolio suggests that the risks can be minimized through
diversification. Simultaneously, the model assures maximization of overall portfolio
returns.
• Investors are presented with two types of stocks—low-risk, low-return, and high-risk,
high-return stocks.
• Risks are also divided into two—systematic risk and unsystematic risk. The Harry
Markowitz model uses mathematical calculations to reduce risks; it builds an ideal
portfolio.
• Nonetheless, real-world investments cannot eliminate a certain level of risk.
• Thus, investors must possess some risk appetite. New investors especially benefit from
this theory—the Markowitz model of portfolio popularized diversification. Not to mention
the importance of understanding and avoiding systematic portfolio risks.
• On the downside, the limitations of Markowitz model stem from its overreliance on
assumptions. These flaws can make the conclusions irrelevant to prevailing market
conditions.
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32. REFERENCES
• https://tensix.com/7-benefits-of-portfolio-management/
• https://in.indeed.com/career-advice/career-development/what-is-
portfolio-management
• https://www.motilaloswal.com/article-details/what-do-we-
understand-by-an-optimal-portfolio-/1924
• https://www.wallstreetmojo.com/markowitz-model/
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