Portfolio Management, its Types, and Objectives

Portfolio management is a must in today’s high-risk investment landscape. It would help if you maximised returns with the help of effective management strategies. Investors need to find the existing portfolio risks at regular intervals. When risks aren’t mitigated, they might hamper the investment return. Read on to understand what portfolio management is and more about it.

What is Portfolio Management?

You already know that a portfolio consists of different assets or investments. Portfolio management refers to looking after one’s investments to maximise the returns. These strategies allow investors to minimise risks that might hamper the overall return. One must oversee the performance of portfolio elements at all times. Also, one must understand the current market conditions and their impact on portfolio elements.

It allows investors to make informed decisions, form entry/exit strategies, manage risks and achieve their long-term financial goals. They often adjust or re-align their portfolios to ensure they can achieve pre-defined financial goals.

Types of Portfolio Management

Now that you understand the portfolio management meaning, let us discuss its types:

  • Active Management: Some portfolio managers or investors might actively buy and sell securities in the market. They do so to outperform the market and earn high returns. Usually, active portfolio managers buy and sell securities based on their price fluctuations.

  • Passive Management: Passive portfolio managers prefer keeping a fixed profile. Instead of outperforming the market, they focus on long-term investments in the same financial instruments. For instance, many passive portfolio managers invest in Exchange Traded Funds (ETFs). It allows them to hold a diversified portfolio of assets for the long term.

  • Discretionary Management: Some portfolio managers have the authority to make decisions on behalf of investors. Portfolio managers consider investors as their clients and make decisions at their discretion. Portfolio managers usually implement investment strategies based on the investor’s risk appetite and financial goals.

  • Non-Discretionary Management: Non-discretionary management involves support for decision-making. Portfolio managers only offer suggestions to their clients. It is up to the investor to listen to the portfolio manager or do something else. However, most investors prefer listening to experienced portfolio managers.


Now that you understand the portfolio management types, let us discuss an example. Let us say a beginner in the market – Mohan has Rs. 1,00,000. However, he does not have an understanding of different assets in the market, like stocks, bonds, mutual funds, and commodities. He doesn’t know how to allocate trading capital for different assets and achieve portfolio diversification. In such a case, he might search for the services of a portfolio manager.

The investor might ask for help from its stockbroker. The stockbroker might recommend buying shares, derivatives, mutual fund units, and other financial instruments. It will distribute the trading capital in different assets to maximise portfolio performance.

Objectives of Portfolio Management

Here are the portfolio management objectives one must know:

  • Diversification: It involves investing in a range of assets to diversify the portfolio. Investing in diverse assets will lead to fewer risks and attractive returns.

  • Maximised Returns: It allows investors to buy/sell securities to achieve financial goals. Since investment decisions are informed, it leads to higher returns for the investor.

  • Preserving Trading Capital: Portfolio managers help investors preserve their initial trading capital. Since investments provide returns over time, the initial trading capital is not lost.

  • Aligning Investments with Goals: It helps us to make investments based on financial goals. Let us say your financial goal is to build substantial wealth over time. In such a case, portfolio managers recommend mutual funds, equity stakes, and other long-term assets.

  • Rigorous Monitoring: Monitoring investments is a part of portfolio management. One can track the performance of assets and make informed decisions with the help of portfolio monitoring.

  • Improved Liquidity Management: It allows investors to hold some liquid assets at all times. It allows them to convert assets into cash when needed.

Who Should Opt for Portfolio Management?

Do you have an investment portfolio and predetermined financial goal(s)? If yes, you can benefit from portfolio management services. Here are individuals who can opt for the same:

  • Investors wanting to build a diversified portfolio. You can seek help when you know nothing about different assets available in the market.

  • Investors having little or no knowledge of market trends, forces, and other factors can opt for these services.

  • Institutional investors having vast trading capital can benefit from portfolio management. They can earn attractive returns by investing in different assets suggested by a manager.

  • Some investors might not have the time to track their portfolios, markets, and other elements. Such investors can still make informed decisions with the help of portfolio managers.

Ways of Portfolio Management

A range of strategies can be used for effective management. Here are some ways of portfolio management for investors:

  • Asset Allocation: Investors must invest in both volatile and non-volatile assets to minimise risks and earn better returns. Also, the asset allocation in your portfolio must be aligned with financial goals.

  • Portfolio Diversification: Portfolio diversification is one of the common management strategies. It helps invest in a range of assets to minimise risks and earn better returns. Investors must focus on creating a perfect blend of risk and reward in their portfolio. The risks are far higher when you invest in only a single asset type.

  • Portfolio Rebalancing: There is a need to change portfolio elements based on market conditions and financial goals. You might sell or buy different assets at regular intervals to achieve financial goals. Rebalancing involves adjusting or changing the portfolio’s asset allocation values based on a particular investment plan or strategy. Asset allocation values can change over time for investors. It is essential to rebalance those values to achieve financial goals or implement investment strategies.

Processes of Portfolio Management

Are you ready to implement portfolio management strategies? If yes, follow these steps for effective results:

  • Step 1 – Identify Objectives: The first step for investors is to identify financial objectives. You must determine achievable objectives, such as stable or compounded returns.

  • Step 2 – Market Estimation: You must analyse the associated returns on your investments along with risks.

  • Step 3 – Decide on Asset Allocation Values: You must decide on the asset allocation value or ratio beforehand. It will work as a benchmark for you to rebalance the portfolio whenever needed.

  • Step 4 – Develop Portfolio Strategies: You must develop portfolio strategies to implement based on your risk appetite, investment horizon, and other factors.

  • Step 5 – Invest in Preferred Securities: The next step is to buy different securities based on the investment strategies and asset allocation expectations.

  • Step 6 – Monitor the Portfolio: Investors must monitor the portfolio performance based on pre-decided goals and standards.

  • Step 7 – Make Changes When Required: You might have to make changes in your portfolio based on current market conditions to maximise returns.

Risk, Return, & Diversification

Beginners in the investment sector must learn some basics to indulge in portfolio management. You might have seen how volatile and non-volatile assets are available in the market. In most cases, the risk is directly proportional to the returns provided by the asset. For the same rationale, highly volatile assets in the market offer attractive returns.

One might think taking more risks is the only way to earn attractive returns. Well, every investor has a unique risk tolerance based on their earnings and financial status. It is essential to analyse your risk appetite and invest accordingly. It is better to have a balance of high and low-risk investments in your portfolio. Also, investors must focus on portfolio diversification to spread risks equally across different assets.


Portfolio management is essential for removing risks, maximising returns, and achieving financial goals. Beginners or new investors must be familiar with asset allocation, diversification, rebalancing, and other strategies. Also, portfolio monitoring is a must for investors to make timely and informed decisions. Start implementing effective management strategies now!

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