Topics: Investment, Active management, Modern portfolio theory Pages: 6 (1870 words) Published: April 13, 2013
The main aim of private sector is to seek profit, their capacity is to earn profit, depends on their investment policy among others. Its investment policy, return, depends on the manner in which it manages its investment portfolio. Thus, organizations investment policy emerges from a straight forward application of the theory of portfolio management. Portfolio management therefore, refers the prudent management of an organization (banks) assets and liabilities, in order to seek some optimum contribution of income or profits, liquidity and safety.

Modern portfolio theory provides fundamental concepts that are useful in multiple portfolio management environments. Portfolio management is about aggregating sets of user needs into a portfolio and weighing numerous elements to determine the mix of resource investments expected to result in improved end user capabilities. The key elements that portfolio management must assess are over all goals, timing and tolerance of risk, cost/price interdependences, budget and change in the enterprise environment over time. Accountability for the transparency of the government expenditures has been a significant focus during the last two decades. More recently it has become important that this expenditures (agency, mission) outcome efficiently, effectively and collectively rather than as independent unrelated initiatives. Portfolio management is a key tool for supporting this form of fiscal accountability.

The manner in which organizations (banks) manage their portfolio, that is acquiring and disposing of their earning assets, can have important effect on the financial markets, on the borrowing and spending practices of households and businesses and on the economy as a whole. 1.1. CONCEPT OF PORTFOLIO MANAGEMENT

DEFINITION OF PORTFOLIOA portfolio refers to a collection of investment tools such as stocks, shares, mutual funds, bonds, cash and so on depending on the investor’s income, budget and convenient time frame.Following are the two types of Portfolio: 1. Market Portfolio 2. Zero Investment Portfolio What is Portfolio Management ?The art of selecting the right investment policy for the individuals in terms of minimum risk and maximum return is called as portfolio management.Portfolio management refers to managing an individual’s investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits within the stipulated time frame.| | Portfolio management refers to managing money of an individual under the expert guidance of portfolio managers. In a layman’s language, the art of managing an individual’s investment is called as portfolio management. Need for Portfolio Management

Portfolio management presents the best investment plan to the individuals as per their income, budget, age and ability to undertake risks. Portfolio management minimizes the risks involved in investing and also increases the chance of making profits. Portfolio managers understand the client’s financial needs and suggest the best and unique investment policy for them with minimum risks involved. Portfolio management enables the portfolio managers to provide customized investment solutions to clients as per their needs and requirements. Types of Portfolio Management

Portfolio Management is further of the following types:
* Active Portfolio Management: As the name suggests, in an active portfolio management service, the portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to individuals. * Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals with a fixed portfolio designed to match the current market scenario. * Discretionary Portfolio management services: In Discretionary portfolio management services, an individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual issues...
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