Types of Portfolio Management

Portfolio Management can be classified into: 

1. Active Portfolio Management:  In active portfolio management, a portfolio manager is continuously involved in the activity of trading securities to outperform the market and achieve specific financial goals. They basically aim at buying unvalued securities and then selling them at a high price to earn a profit. Active portfolio management is characterized by higher fees and commissions.

2. Passive Portfolio Management: Passive portfolio management is based on the theory of invest-and-forget strategy. Under this, investments are made into a portfolio of index funds to replicate the performance of a particular market index like an exchange-traded fund (ETF), a mutual fund, a unit investment trust, and other low-cost index funds. These generally offer lower returns but are profitable in the long term. The management fee is comparatively lower under this category.

3. Dynamic Portfolio Management: Dynamic portfolio management can be understood as hybrid portfolio management as it includes features of both active and passive portfolio management. Under this, Portfolio Managers implement long-term investment strategies while making tactical adjustments and rebalancing in response to market changes.

4. Discretionary Portfolio Management: Discretionary portfolio management forms authorize managers and financial experts to make all the financial decisions on behalf of their clients without seeking any separate approval each time. However, paperwork and filing are done initially to avoid any conflict and confusion between the manager and their clients. A portfolio manager has full control over investment decisions, while the investor provides only general guidelines and objectives.

5. Non-discretionary Portfolio Management: Under a Non-discretionary portfolio management system, a manager act just as an adviser to the client. The manager helps with the allocation of assets, selecting investment strategies, and suggesting investment moves to the clients. The manager is not in the capacity to make any investment decision without seeking the approval of the client.

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.