Objectives of Portfolio Management

The basic objective of Portfolio Management is to earn a high return at minimum risk. However, some of the objectives of Portfolio Management are listed below:

1. Attaining Long-term Financial Goals: An investor always invests with a motive to secure the future by earning a high return, keeping this in mind Portfolio Management works with the objective to fulfil the long-term financial goals of the investors by recommending the most profitable portfolio, overseeing and rebalancing it from time to time to ensure high return with minimum risk appetite.

2. Capital Appreciation: Capital appreciation means an increase in the value of an asset over a time period. Portfolio Management intends to make the portfolio of the investor grow, so the market value of the investment rises within the given timeline, in comparison to its purchase value. Capital appreciation is the main source of investors’ earnings.

3. Maximizing Return on Investment: Return on Investment shows the earning from the investment in relation to the expenditure made in such investment.  Portfolio Management aims to maximize the ROI by analyzing the market before selecting the right investment mix. Other factors like time period, inflation, Legal restrictions, and economic conditions are also considered.

4. Achieving Asset Allocation: The primary objective of Portfolio Management is to allocate assets across different investment classes, such as equities, fixed income, and alternative investments in such a way that the asset allocation goes with the investor’s risk profile and investment goals.

5. Risk Management: Investment and risk are something that goes side by side and hence is a major concern of the investors. Portfolio Management minimizes the degree of risk associated with the investment by using the concept of diversified investment. Under this, investment is not made in a single category of an asset or the same industry, rather the investment is scattered into various investment classes or different industries, so even if any of the categories or industries so a downfall the other can overcome it by experiencing the rise.

6. Rebalancing and Monitoring the Portfolio: Portfolio Management aims to regularly monitor and adjust the portfolio by rebalancing the portfolio, adding or removing assets, or changing investment strategies so, it remains consistent with the investor’s risk profile and investment goals.

A portfolio Investment can be understood as a bunch of different financial securities (including assets, stocks, government bonds, corporate bonds, mutual funds, other money market instruments, cash and cash equivalents, cryptocurrencies, commodities, and bank certificates of deposit.), bought with an expectation to gain either in the form of return or increased value, or both. So, the art of constructing and managing these portfolio investments is known as Portfolio Management. 

Portfolio Management aims to meet the long-term financial objectives of the investors within the given timeline while minimizing the degree of market risk. Such management services are provided by professionals, known as Portfolio Managers, who have knowledge of building portfolios, prevailing market situations and future expectations, understanding of risk appetite, and diversified investment. However, individuals with such knowledge can manage and oversee the portfolio on their own.

Portfolio Management is not a one-time activity but a continuous process of building and maintaining the portfolio investment with the intention to earn maximum gain within the given time frame. It can be understood as a continuous cycle of security allocation, diversification, supervision, and reconstruction of the appropriate portfolio. It is based on SWOT Analysis as the Portfolio Managers identify and analyze strengths and weaknesses of various investment plans and examines the market opportunities and threats associated with such investment plans to achieve the investor’s financial objectives.