Diversification is like the five fingers of our hand. Every finger has its unique feature but can act as provisional alternative for one another. And when put them together they can do nothing less than magic. So when diversification depicts” five different fingers of the hand” in isolation, portfolio management is the “fist”. Diversification is the key to build a successful portfolio.
Portfolio means collection of more than one diversified investment assets like; stocks, bonds, mutual funds etc. of an individual investor or an institution. Portfolio management refers to making decisions about these investments by following the relevant policies, matching them with the objectives and balancing the risk: reward. In short portfolio management is the SWOT analysis that suggests what, how much and when to invest.
Portfolio management in the stock market requires time, experience, knowledge and deep analysis, execution and monitoring. In accordance with the ETFs there are two types of portfolio management viz; Active management that tracks only the market index and passive where a manager or a team is appointed to manage the clientele portfolio with due research analysis. Thus a certified professional, highly qualified and experienced manager called as a portfolio manager is appointed for managing investor portfolios. For smooth functioning of portfolio management services, Securities Exchange Board Of India issues and Reserve Bank Of India periodically issue guidelines for the portfolio managers.
Portfolio management requires a deep analysis keeping in view the fundamental and technical quality of the stocks, the income generation, proper asset allocation and diversification. Few softwares have been developed for this analysis which makes it easier and time saving.
Recently many individuals and companies have entered the financial markets to seek for lucrative earnings making stock markets more volatile and indecisive. In such circumstances it is very difficult and risky for an investor to stick to a single mode. Thus portfolio management through diversification is the best option where during the Bull market we can double our earnings but in the bear market loss in one asset can be compensated with the profit in another.
Portfolio management is like a student’s mark sheet where he needs to pass in all the subjects to get promoted to the next class.