What is Portfolio Management?
Portfolio management is the art and science of selecting and supervising a set of investments that match a client’s or company’s long-term financial objectives and risk tolerance. To outperform the market, active portfolio management involves systematically buying and selling stocks and other assets. Passive portfolio management aims to replicate market returns by simulating the composition of a specific index or indexes.
Goals, Importance, Process, and Risk Profile in Portfolio Management:
It’s fantastic that you’ve put money into anything. Now is the time to make sure you get the most out of your investment. It is necessary for you to take an active interest in tracking and managing your financial portfolio to achieve this. It may not come naturally to you at first. However, we believe that by following these ten tips, portfolio management will become convenient and more exciting for you.
1. It’s important to diversify your portfolio:
Keeping your financial portfolio well-diversified is a tried-and-true technique to avoid or limit losses as much as possible. A decent mix of stocks, bonds, and money market instruments so that if one underperforms, the others can compensate and offset the loss. Diversification is essential for maintaining a healthy portfolio.
2. Get a control on your expenditures:
At the risk of sounding like your grandparents, we’ll stress it once again: a rupee made is a rupee saved. Check not only the previous results but also the expense ratios and other charges. There are other ways to save money. If you don’t want to deal with direct plans, for example, choose an intermediary who charges a set price rather than frequent commissions per transaction.
3. Recognize your risk profile:
How much risk are you willing to take?
It’s a million-dollar question, to be sure!
It largely depends on your age and current income to establish your investing horizon. For example, if you’re 30 years old, your investment horizon is 30 years (assuming that you plan to retire at age 60). You can take on more risk than someone in their forties or fifties.
How much money are you willing to put into investing every month? Have you considered the possibility of losses?
Remember that investing in the stock market comes with risks, and you should only do so if you don’t want to end up in a deeper hole when the market drops.
4. Begin when you’re young:
When it comes to investing, age is more than just a number. When you’ve recently graduated from college and begun working, it’s normal to want to enjoy your newfound financial independence. Financial experts, on the other hand, cannot emphasize enough the necessity of getting started early and investing over a long period. The younger you are, the more mental and emotional energy you’ll need to take on higher risks and reap greater rewards.
5. Know the difference between debt and equity:
You will have three options when it comes to financial planning and investing: debt, equity, or a combination of both. Bonds, for example, are financial instruments that provide capital protection while also providing a constant income (albeit low returns). Money market instruments, such as FDs also, provide lower returns while keeping your money secure. Investing in shares, on the other hand, makes you an owner of the company’s portion – the share you ‘bought.’ If the firm does well, you will be able to mint money in the form of dividends or corpus. And if profits are down, so are returns.
6. Observe the market and keep an eye on it:
If you’re new to investing, it’s a good idea to start by investing primarily in debt and money market assets. Equity investments are only for those who are familiar with the financial markets. Knowing the current trends might assist you in making an educated decision. Keep in mind that equity builds over time to provide you with the most rewards.
7. The key to success is having and maintaining discipline:
A portfolio must be maintained regularly to reach its full potential. Some months may go well, and you will have no trouble paying the agreed-upon amount toward your investment. Some months may be financially difficult for you, and it may be tempting to skip or withdraw. One approach to deal with this is to set up automatic payments at the beginning of each month (salary day). You will be able to more effectively budget your monthly finances as a result of this. In the event of a job loss or a medical emergency, these funds will be your lifeline.
8. Don’t invest and then disappear; track your development on a frequent basis:
Yes, you’ve chosen regular funds and have hired an intermediary to manage your portfolio for a charge. It does not, however, relieve you, the investor, of all liability. Keep an eye on your company’s market position and figure out when it’s time to cut your losses and switch. Keep up with corporate news, profit announcements, and the company’s overall objective.
9. Emotions and impulsiveness should be left at the door:
When one investor becomes anxious or overconfident, it usually implies good news for another. Because when you’re either, you’re more likely to make decisions that you’ll come to regret. One classic example is when an investor, eager to take advantage of the current favorable market conditions, takes out a large loan to invest. It is a huge blunder since it can result in a double load of loss and debt repayment. Maintaining a level head even when others become agitated or greedy will help you make objective and quick decisions.
10. Don’t forget about tax payments:
Gains from mutual funds are subject to taxation. Long-term debt fund gains (three years or more) are taxed at 20%, while short-term profits are applied to your current income. As a result, when you’re planning, remember to keep this in mind. For example, according to Section 80C, ELSS is India’s only tax-saving mutual fund. In a nutshell, portfolio management is an art. But it also necessitates a scientific and objective approach – a game that requires equal amounts of heart and head.
If all of this sounds like too much for you, MyGoalMySip can free you of a lot of the burden. We’ve hand-selected funds from the best fund companies, based on your risk profile and needs. Start putting money into it.
Read Next: “What is a fixed maturity plan?”
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