“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
…..Robert G Allen
This is third post in the series how to get into portfolio management. In this post, we will cover the functions and types of portfolio management in short.
A portfolio manager is a person who makes investment decisions using money other people have placed under his or her control. In other words, it is a financial career involved in investment management. They work with a team of analysts and researchers, and are ultimately responsible for establishing an investment strategy, selecting appropriate investments and allocating each investment properly for a fund- or asset-management vehicle.
Portfolio managers are presented with investment ideas from internal buy-side analysts and sell-side analysts from investment banks. It is their job to sift through the relevant information and use their judgment to buy and sell securities. Throughout each day, they read reports, talk to company managers and monitor industry and economic trends looking for the right company and time to invest the portfolio’s capital.
Functions of Portfolio Management
The nature of Stock Portfolio Management can be institutional. Mutual funds are a type of portfolio schemes. Many new pension funds have been introduced of late. These funds also must develop a portfolio so that returns may be spawned for the participants. Following are few of the functions of portfolio management:
1. To build an investment strategy and choose a suitable investment mix.
2. To offer a well-balanced portfolio that will optimize the yields and will also hedge against inflation.
3. To invest some part of the portfolio in tax saving schemes in order to enhance the after-tax returns.
*This is a small list.
Types of Portfolio Management
1. Discretionary Portfolio Management Service:
In this type of portfolio management, a client hands over his money to the manager for investment purpose. The manager then takes care of all the concerned paper work, makes all necessary investment decisions and provides good returns to the investors. The investor is charged some fee for this service provided by the manager.
2. Non-Discretionary Portfolio Management Service:
In non-discretionary type of portfolio management service, the manager operates as a counselor, however, it is up to the investor whether to accept or reject the suggestion provided by the manager. Also, the paperwork and related formalities are taken up by the manager for a service charge. The manager focuses on stock market instruments with a portfolio that is customized for the risk taking capability of the investor.
Through this article, you must have understood how important the portfolio management is for individuals and companies too.