JAIIB | Paper 4 | RBWM | Module D | Unit 2 | Investment Management | Part 2 | New Syllabus | Bawal

Module D
Wealth Management
Unit 2: Investment Management 
(Part 2)
What is Portfolio Management?
Portfolio management is selecting and overseeing a group of investments that meet the long-term financial objectives and risk tolerance of a client, a company, or an institution.
It’s managing an individual’s investments in the form of bonds, shares, cash, mutual funds, etc.
Objectives Of Portfolio Management

The fundamental objective of portfolio management is to help select best investment options as per one’s income, age, time horizon and risk appetite.

Some of the core objectives of portfolio management are as follows:
Capital appreciation
Maximizing returns on investment
To improve the overall proficiency of the portfolio
Risk optimization
Allocating resources optimally
Ensuring flexibility of portfolio
Protecting earnings against market risks
The following should consider portfolio management:
Investors who intend to invest across different investment avenues like bonds, stocks, funds, commodities, etc. but do not possess enough knowledge about the entire process.
Those who have limited knowledge about the investment market.
Investors who do not know how market forces influence returns on investment.
Investors who do not have enough time to track their investments or rebalance their investment portfolio.

Key Elements of Portfolio Management
Asset Allocation
Diversification
Rebalancing
Portfolio Management Vs Investment Banking
Portfolio Management refers to the management of the portfolio of assets of the client whereas, investment banking refers to the various different type of function performed by the investment banker in the economy by offering different financial services to their clients by mainly dealing in the purchase and sale of the stock and helping in raising the capital.
Portfolio Management (Asset management) is all about managing clients’ investments whereas Investment Banking is all about raising the capital for clients.
In case of Portfolio Management (Asset management), clients already have the money which portfolio manager need to manage whereas, in the case of investment banking, clients don’t have the money and investment banking professional need to raise capital to support your clients.
Portfolio Management Service Vs Mutual Funds (Mfs)
Customization:
PMS offers a higher degree of customization tailored specifically to the goals of an investor.
Mutual funds offer customization to the extent of the classification and diversity of the fund.
Engagement:
PMS is personalized promoting a dialogue between the portfolio manager and investor. An investor can convey any changes in the risk profile or personal situations to maximize returns. Portfolio managers for PMS are also directly accountable to the investors.
MFs offer low engagement with the investor limited to fact sheets.
Fee structures:
MFs charge a fixed fee attributed to the entry and exit of investments as well as annual expenses for maintenance (known as the expense ratio).
PMS demands a share in the profit over a particular rate of return (known as hurdle rate) in addition to the annual maintenance fee.
Asset ownership:
Under PMS, the investor retains direct ownership of shares of the company.
However, MFs offer units in the form of investment.
Investment size:
MFs entertain any amount of capital.
However, PMS demand a capital investment which must be over the minimum limit of ₹50/- Lakh as per Securities and Exchange Board of India (SEBI) guidelines.
Types of Portfolio Management Services

Active Portfolio Management:
The aim of the active portfolio manager is to make better returns than what the market dictates.
Active managers buy stocks when they are undervalued and start selling when they climb above the norm

Passive Portfolio Management:
At the opposite end of active management comes the passive investing strategy.
Those who subscribe to this theory believe in the efficient market hypothesis.
The claim is that the fundamentals of a company will always be reflected in the price of the stock.
Therefore, the passive manager prefers to dabble in index funds which have a low turnover, but good long-term worth.
Discretionary Portfolio Management:
A discretionary manager is given full leeway to make decisions for the investor.
While the individual goals and time- frame are taken into account, the manager adopts whichever strategy he thinks best.
Non-Discretionary Portfolio Management:
The non-discretionary manager is simply a financial counselor.
He advises the investor in which routes are best to take.
While the pros and cons are clearly outlined, it is up to the investor to choose his own path.
Only once the manager has been given the go ahead, does he make a move on the investor's behalf.
Advantages of Portfolio Management
Makes Right Investment Choice: It enables in making more informed decisions regarding investment plans in accordance with the goals and objectives.