Portfolio management refers to managing efficiently the investment held in portfolio. It includes proper selection of securities, constant rebalancing/reshuffling of securities and portfolio performance evaluation. It is an art and science of selecting and revising the securities according to changing market situation and changing objectives of investment.
Portfolio manager is a professional who manages portfolio of other persons for certain fee. He seeks to improve return on investors’ portfolio but at the same time he also has to reduce the risk.
The riskiness of portfolio is different from riskiness of individual securities. The portfolio risk can be reduced by proper diversification and choosing securities in such a way that loss in one security can be compensated by profit of other security.
Objectives of portfolio management
· Maximising returns
· Minimising portfolio risk
· Tax benefits
Principles of portfolio construction
· Portfolio matters far more than the individual security
· Larger expected portfolio returns come only with larger portfolio risk
· Diversification works
· Each portfolio should be tailored as per the needs and requirements of it are the investors.