Portfolio management is a comprehensive process that involves various steps, each critical to ensuring your investments align with your financial goals and risk tolerance.
Here’s the process:
- Understanding Investor Profile: This is the first step where the portfolio manager gauges your financial standing, investment goals, risk tolerance, time horizon, etc. This understanding lays the foundation for designing an appropriate investment strategy.
- Establishing Investment Objectives: The manager helps you articulate your investment objectives, which could include wealth preservation, income generation, capital appreciation, or a combination of these.
- Developing an Investment Policy: The manager formulates an investment policy based on your objectives. This policy outlines the types of assets to invest in, diversification norms, risk tolerance, and the benchmark for performance evaluation.
- Formulating an Investment Strategy: Based on the investment policy, the manager creates a strategy. This can involve strategic asset allocation, tactical asset allocation, and security selection.
- Selecting Investments: With a strategy in place, the manager selects the right assets. They consider various factors such as market conditions, economic forecasts, and asset valuation.
- Portfolio Construction: The manager builds the portfolio, maintaining the appropriate asset mix.
- Reviewing and Rebalancing: The manager regularly reviews the portfolio’s performance against the benchmark and rebalances it when needed, ensuring it aligns with the investment strategy.
- Performance Evaluation: The manager evaluates portfolio performance periodically. This includes assessing individual asset performance and the overall portfolio performance.
- Reporting: Regular, detailed reports are provided to you, including information on portfolio performance, transactions, and any changes to the investment strategy.
A good portfolio management process is iterative and requires continuous monitoring and adjustments based on market conditions and your changing financial situation and goals. A professional portfolio manager (PMS) or SEBI Regd Investment advisor can help guide you through this process.
