Portfolio Management and Phases of Portfolio Management

Portfolio

• Portfolio is a collection of two or more securities held at a specific point of time with the aim of fulfillment of investment objectives. 
• A combination of various investment products like bonds, shares, mutual funds etc. 

Portfolio management

• Decision on investments in terms of what investments to buy and sell so as to manage the basket of securities to yield the highest possible return with the lowest risk. 
• The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions and balancing risk against performance. 

Phases of portfolio management

1. Security analysis
2. Portfolio analysis
3. Portfolio selection
4. Portfolio revision
5. Portfolio evaluation

Security analysis

• In depth analysis of each of the securities in terms of their features. 
• Each alternative is evaluated in terms of risk and return.
• Fundamental analysis, technical analysis and EMH  are some of the methods. 
• Securities are of different kinds: equity shares and preference shares (ownership basis), debentures and bonds (creditorship basis) and a variety of new securities – deep discount bonds, zero coupon bonds, flexi bonds, floating rate bonds, global depository receipts etc. 

Portfolio analysis

• Portfolio is a group of securities which an investor invests in. 
• Always investors prefer to invest in a group of securities rather than a single security due to the benefit of risk aversion.
• In portfolio analysis – each security in the portfolio is analyzed by measuring the risk-return characteristics.
• Portfolio analysis is a phase of portfolio management that seeks to identify the possible range of securities in which investments can be made so as to decide on the optimum portfolio in which investment can be made.

Portfolio selection

• Portfolio that provides the highest return and the lowest risk is known as the optimal portfolio.
• The process of finding the optimal portfolio is known as portfolio selection.
• Stage after portfolio analysis.
• Inputs received from portfolio analysis are utilized so as to make a decision on selection of the best portfolio from among  the set of selected and shortlisted portfolios known as efficient portfolios.
• Harry Markowitz portfolio theory provides the basis for analyzing and evaluating the portfolio known as an efficient portfolio from amongst the available options in an objective manner through a proper framework.