Why Do You Need Portfolio Management?

It is a well – known fact that building a portfolio for the investment of one’s capital is the right financial decision as compared to investing in just one asset class. Here we are going to enlighten you about Why Do You Need Portfolio Management?

PMS meaning is simple. Portfolio Management Services helps you to manage your wealth by diversifying the risk.

Portfolio management refers to the allocation of funds in different assets keeping in mind the risk factors related to different instruments as well as long term financial goals.

Also, read PMS Features in India, PMS Review, PMS Registration

A well-balanced portfolio means investments done in fixed deposits, stocks, mutual funds, commodities, etc.

Types of Portfolio Management

There are two ways of managing a portfolio

1) Passive Management – It means that making a portfolio for long term returns and letting it take its own course. This can be done by investing in one or multiple exchanges – traded index funds.

The make – up of these funds is similar to an index. After building a portfolio, there is not much to do in passive portfolio management for the long term.

2) Active Management – This means that an investor is actively checking out new opportunities and investing in them.

Simultaneously, it also means the allocation of lesser funds to poorly performing asset classes at that particular instant in the financial markets.

In active portfolio management, the aim is to beat the returns of the indices by actively buying and selling assets to make more profits.

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Significance of Portfolio Management

1) Making the Right Choices – Portfolio management helps one in making more informed choices as per one’s own specific financial condition.

For example, a young person who is earning a stable salary can afford to expose herself/himself to more of equities where returns are good with an inherent risk factor involved with the stock market.

On the other side, a person who is nearing retirement or has many financial obligations should consider investing her / his funds in relatively less risky instruments.

2) Constant Track of Performance – Actively managing your portfolio helps in keeping a constant check on the different investment options chosen at the time of building a portfolio.

If one asset has not been performing well, some funds can be withdrawn from that asset class and invested in any other uncorrelated asset class.

This would help in achieving long term financial targets without getting stuck in one poor-performing asset.

3) Investments in a More Disciplined Way – The main aim of portfolio management is to earn maximum returns on your investments.

If one is constantly keeping an eye on different asset classes, he/she may start investing in better asset classes in a more disciplined manner.

4) Preparing for Adverse Situations – An adverse situation can arise at any point in time. This is quite evident, especially in these times of a pandemic.

Active portfolio management enables one to have more liquidity in such times by investing in liquid funds.

5) Readjustment According to Returns – Suppose an individual has a 60:40 mix of equity and debt investments. At some point in time, it can happen that equity starts performing very well.

At that time, the investments can be adjusted to a 70:30 ratio.

This would enable a person to fetch more returns in bullish times. After taking this opportunity, the original ratio of 60:40 can be maintained.

Overall good portfolio management helps you to create a portfolio like Warren Buffett. That is why know about How to Create Portfolio Like Warren Buffett? and know about How much cash you should keep in your portfolio? to make it diversified and risk-free.

Want to know what is the process of portfolio management? It is very easy and simple, you just have to proceed a few steps and you are ready to receive the services.

Also, read What Is Portfolio Rebalancing And Why Is It Important?

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Conclusion 

So, it has already been established that the best way to invest your hard-earned money is to make a good portfolio. More importantly, it is important to manage that portfolio with changing times.

Managing a portfolio is important because of many reasons. Firstly, it lets us make well – informed choices of selecting the right mix of financial instruments.

Secondly, it reduces the risk factor by the allocation of relatively less few in riskier investments and more money in good performing assets.

Portfolio management, on a regular basis, keeps us disciplined and also helps in managing the requirements of funds in emergencies.

Also, one can readjust his / her portfolio according to the returns being generated in different asset classes. Stay informed, stay invested.

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