What is an Asset?| What is a Portfolio?| Who is a Portfolio Manager?
In the world of finance, one of the most important branch
that often comes up into discussion is “Portfolio Management”. Because after earning
a handsome, what we finally look out for is investing the funds in a manner
where existing sum can create a wealth generating machine efficient enough to run
on its own with timely interventions for rebalancing and dynamically managing
asset allocation.
Here we are going to start a series of lectures in the form
of articles wherein we are going to discuss from the base about what is portfolio
management all about, laying strong foundation of the same and reaching its
pinnacle discussing the arena of the optimum portfolio selection.
Don’t worry. Even if you are new to the world of finance, these sessions will be easily comprehensible so that you can build up your knowledge on the same.
What is portfolio management?
We will discuss the meaning of portfolio management twice in
this series of lectures. For now, we will discuss the meaning in its very raw
form which will be even comprehensible for a layman in the world of finance.
As we will move forward we will keep leveling up our
discussion in a gradual manner and once you will grasp the topics on the way
ahead, then we dwell into its complex definitions which will be a cup of tea
for you by then.
So here we go…
So we all earn money and out if the total earning we spend a
part and rest are out savings and investment. The sole purpose of the
investment is to deploy that part of money in an avenue which can generate
return on that fund that is to say create more money out of existing sum of
money.
Now the first thing which comes up in our mind when we
decide to invest money is Where to
invest? In which asset to invest? Which asset will give maximum return? For
what time to invest? How much risk I should take? Should I invest all my money
in one asset or should I diversify by investing in multiple asset? How often I should
rebalance or restructure my portfolio?
By the way, an Asset in a layman term means any avenue where
we can invest today and which has a potential to deliver returns in the future.
Here the asset can be stocks, bonds, real estate, etc.
And a portfolio means the group of assets in which we have
invested our sum of money.
In short, all the above questions can be summarized in a
single question as
What should be my
optimum portfolio?
Here when we say optimum portfolio, we are referring to a
portfolio which gives maximum satisfaction to an investor considering the
investor’s risk appetite and return expectations.
And then after constructing the optimum portfolio, timely rebalancing
and restructuring the portfolio is also of utmost important. For now, you
simply understand, rebalancing and restructuring refers to the changes made in
the portfolio that is either you increase or decrease the amount of money
invested in an asset or you switch the money from one asset to another asset.
Here in its very raw form, to construct optimum portfolio and timely rebalancing and
restructuring the portfolio is known as Portfolio Management.
Although it is too basic form not sufficient enough to
justify the vastness of this arena but don’t worry we will catch up with the
same.
Now generally any layman would not be an expert enough to
undertake the portfolio management process which involves detailed analysis of
available investment avenues, risk-return profiling, looking after rebalancing
and restructuring of the portfolio of assets in a timely manner considering the
macro economic factors and finally constructing a portfolio which would provide
oneself maximum satisfaction.
Hence comes into picture a Portfolio Manager. A portfolio manager is a professional which
has expertise into Portfolio Management. The Portfolio Manager can be an
institution having granted license to accept and manage funds, by respective
regulatory body or an individual expert providing portfolio management services
duly certified by appropriate regulator.
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