Portfolio Management: How to Manage It Effectively with Tickertape

Last Updated on Aug 2, 2024 by Harshit Singh

Portfolio management is a crucial skill that requires thorough analysis, strategy formulation, revision, rebalancing, and more. Whether you’re a seasoned investor or just starting out, effectively managing your investments can significantly impact your financial success. Therefore, in this article, let us understand portfolio management in detail, its objectives, types, process, and how to analyse and manage your portfolio effectively with Tickertape.

What is portfolio management?

The term ‘portfolio management’ is made up of two words. Let’s first understand what these mean individually.

Portfolio – A portfolio is a collection of investments, including stocks, bonds, ETFs, mutual funds, debt instruments, and more.

Management – Management means planning, organising resources, and coordinating activities to achieve a predetermined goal most effectively.

Put together, ‘portfolio management’ is a process of evaluating and managing investments based on an individual’s objectives in order to maximise their earnings within a given time frame. The objectives of an individual can be based on various factors like budget, risk tolerance, etc.

Whether you are a retail investor, high net worth individual or a business, portfolio management is a valuable skill to have. It ensures the capital invested is not exposed to a lot of market risk. You can always take the help of a professional to enjoy optimal returns and achieve your goals.

Objectives of portfolio management

The primary objective of portfolio management is to invest in securities that will help you maximise your returns while minimising the risks to achieve those goals.

• Capital appreciation: The primary objective of portfolio management is to enjoy capital appreciation. The principal invested should grow into a corpus at a higher rate than inflation. It should also minimise risks such as market swings and fund erosion via taxes. If the investor agrees, reinvesting can be considered to generate more income.   
• Frequency of income generation: While some investors seek regular income that can be enjoyed through dividends, others may prefer receiving a larger maturity corpus in the form of capital appreciation. A portfolio manager should consider these factors when building one.
• Stable return rate: While capital appreciation is the goal, an investment portfolio should provide you with a steady flow of returns while ensuring the safety of the investment. At the least, your current return income should meet the opportunity cost of your funds.
• Tax planning: Earning handsome returns but not being able to retain them due to poor tax planning is disappointing. Different assets are taxed differently. Hence, a portfolio manager should consider tax policies during asset allocation to help investors plan their taxes better and not evade them.
• Liquidity: Another critical objective of portfolio management is to manage liquidity. It gives an investor immediate access to funds for an emergency, an expense, an exciting venture, rebalancing the portfolio, or even participating in a company’s rights issue. A noteworthy point here is to invest in a well-balanced mix of listed and unlisted shares because the former has more traceability than the latter.
• Safety of investments: Above all else, portfolios constructed should match the investor’s risk potential. Funds should be allocated so that the investor doesn’t lose funds they can’t afford. Ultimately, minimising risk is an important aim of portfolio management.
• Marketability: If your portfolio consists of poor-performing or inactive stocks or funds, you might face difficulty in marketing them or switching from one investment to another. Hence, investing in companies that are actively traded by other investors and have higher marketability is crucial.
• Diversification: There’s nothing called zero risk. That is to say, no risk, no returns. Hence, the only way to enjoy maximum returns is by minimising risk, which can be done through diversification.
• Long-term planning: Planning your sunset years in advance can help you carve out a clear path to achieve your retirement goals. Hence, it is considered that the earlier you start, the better. A portfolio manager should consider your retirement and long-term goals while crafting your portfolio.

Types of portfolio management

As discussed below, there are four types of portfolio management:

1. Active portfolio management

This type of portfolio management calls for a high level of expertise in stock markets. The manager of such a portfolio is actively involved in buying and selling stocks frequently to beat the broader market (indices). The strategy is said to be ‘active’ as it requires consistent evaluation of the market to identify and buy undervalued assets and sell them at the right time. The process involves proactive quantitative analysis, diversification, and understanding of business cycles.

However, active portfolio management comes with extremely high fees as the fund manager implements an aggressive investment strategy that involves constant monitoring and asset turnover. As such, this is best suited for experienced investors that have a higher risk appetite.

2. Passive portfolio management

This type of portfolio management focuses on long-term investing. Passive portfolio managers try to replicate market returns. They believe that the prices of assets always reflect their fundamentals. 

What differentiates passive portfolio management from the active counterpart is that the former type aims at long-term wealth creation and not necessarily to actively beat the markets. This is the reason passive investing is well suited for investors looking to minimise risk and earn consistent returns. 

High Net-Worth Individuals (HNI) looking to earn consistent returns over the long term at low cost also avail such services. Investors who seek to minimise risk often prefer passive strategies. While low cost is a benefit of passive portfolio management, a downside is that it poses a security risk. For instance, indices like the Nifty 100 have only large-cap stocks. Therefore, investing in funds tracking this index would make your portfolio large-cap equity-focused.

3. Discretionary portfolio management

Under discretionary portfolio management, the portfolio manager is fully authorised to take decisions and buy/sell securities on their client’s behalf. This type of portfolio management is suited for individuals that don’t wish to be directly involved in the investment strategy. However, like in the case of active portfolio management, such managers also charge high fees for their premium services.

The primary advantage of discretionary investing is that an expert is taking all your investment decisions. It might make your life a lot simpler.

4. Non-discretionary portfolio management

Non-discretionary portfolio management involves advising clients on whether an investment is good or bad for them. Such a manager acts as a mere financial advisor but doesn’t execute any trades on the investor’s behalf. The clients have full authority over their investments besides expert guidance.

The primary benefit of non-discretionary portfolio management is it allows you to have a financial expert without giving them control of your investment decisions. However, in the case of new market conditions, if you wish to shift your portfolio’s focus quickly, you have to wait for your manager’s approval. It might cost you, and you can end up having lost the opportunity. 

Portfolio management strategies

A portfolio is good for you when it efficiently meets your objectives following your investment stage and budget while minimising the risk. Though everyone’s portfolio is different and in accordance with their goals, here are four key features and strategies to curate and manage your portfolio.

• Asset allocation: Effective portfolio management requires a well-thought-of asset allocation that considers an investor’s financial goals and risk tolerance. Asset allocation means spreading funds across asset classes such as stocks, bonds, real estate, and commodities.
• Diversification: This refers to investing across different asset classes and investment avenues that have a low correlation with each other. This especially helps cushion portfolios during bear markets. Diversifying your investments in different instruments provides broader exposure and captures returns from various sectors and asset classes over time.
• Rebalancing: This involves selling securities that have become expensive and piping that money back into undervalued securities or performing a risk-minimisation move to cap the fall in portfolio value and divert funds to better performers. This allows the investor to earn capital gains and also helps in keeping the initial risk-return profile intact. It involves returning a portfolio to its original target allocation.
• Tax reduction: It involves allocating funds to save the individual from paying excessive tax on their investment returns. There are various ways to reduce taxes and improve after-tax returns. Hence, asset allocation should be done wisely.

Portfolio management process

Step 1: Identifying the objectives

The first stage in portfolio management is identifying the objectives and limitations. It is in line with the financial plan. Note that the relative importance of the objectives should also be clearly defined at this stage. 

Step 2: Selection from the asset pool

The next step involves the identification of various assets that can be included in the portfolio. It can be a combination of different assets such as preference shares, bonds, equity shares, etc. The selection is made in accordance with the individual’s risk tolerance and investment limit to spread the risk and minimise loss.

Step 3: Formulation of the strategy

There are various types and strategies to manage a portfolio, like active, passive, rebalancing, and so on. The strategy is formulated depending on your investment horizon, invested capital, and risk appetite.

Step 4: Security analysis 

Security analysis is a method used to calculate the value of various assets and to find the effect of market volatility on their value. It considers the price, possible returns on investment, associated risks, etc. Security analysis helps understand the nature and extent of the risk for any security in the market. There are various ways to perform security analysis, such as fundamental analysis and technical analysis.

Step 5: Execution of the portfolio

It is considered one of the most crucial steps in portfolio management. At this stage, the execution takes place, i.e. the buying and selling of planned securities within the budget and time frame. 

Step 6: Revision of the portfolio

To evaluate the effectiveness of invested securities, a portfolio revision is necessary. It involves constantly monitoring and reviewing the securities according to the market condition. The revision of the portfolio also involves shifting from one stock to another or from one type of security to another. It is also one of the most important steps in portfolio management.

Step 7: Performance evaluation

The evaluation of a portfolio is done over a selected period of time. It is a useful feedback loop that helps in enhancing the quality of the portfolio management process. Performance evaluation involves assessing the risks, return criteria, relative merits and demerits of the portfolio, etc.

Step 8: Rebalancing the portfolio

After the evaluation over a certain period of time, rebalancing of the portfolio is done to maximise returns and minimise losses. It should be performed as often as required while keeping the primary objective in mind.

How to effectively use Tickertape to manage your stock portfolio?

Now that you have understood the process and strategies of managing your portfolio, let’s now look at how to effectively use Tickertape to understand, manage, and rebalance your stock portfolio.

Connect Your Stock Portfolio

Within a few clicks, you can connect your stock portfolio to Tickertape. Go to the homepage, click on ‘Portfolio’, select ‘Stocks’, and then click on ‘Connect’. If you are already connected with a broker, log in with your already existing account or else create a new one. That’s it! Now, let’s look at what you can do with it – Tickertape answers the following questions – 

1. How Diversified is Your Portfolio?

Ever wondered if your portfolio is as diversified as it should be? Tickertape’s Diversification Score is here to answer that question. This feature gives you a clear picture of how well-diversified your stock portfolio is compared to the peers. It highlights the strengths and weaknesses of your current holdings and shows you the composition of the community’s portfolio, especially those with a diversification score of 75 or above. This can help in exploring new investments based on the market cap.

With the help of Diversification Score, you might find hidden gems that you never considered before, enhancing the diversity and robustness of your investments.

2. What Is the Weight of Each Stock in Your Portfolio?

Understanding the weight of each stock in your portfolio is crucial because it helps you maintain a balanced investment strategy and manage risk effectively. Tickertape’s Holding Distribution feature breaks it down for you, showing the weightage of each stock relative to your total portfolio value.

This detailed view is a game-changer for making informed rebalancing decisions. For instance, if one stock has grown significantly and now dominates your portfolio, you might want to rebalance to manage risk. On the other hand, if a stock’s weight has decreased, it could be a good time to invest more to keep your portfolio balanced.

3. What Are the Projected Returns for Your Investments?

Wouldn’t it be great if you could get a sneak peek into the future of your investments? Tickertape’s Forecast feature does just that. It presents projected returns for the next year, helping you anticipate market trends and make proactive decisions.

While no forecast can guarantee future returns, having an informed projection can significantly enhance your investment strategy. You can compare the forecasted returns of different stocks and adjust your investments to optimise potential gains.

4. How Can You Stay Updated with the Latest Investment News?

Staying updated with the latest news and events that could impact your investments is essential. Tickertape’s News / Events feature keeps you in the loop with timely updates on market movements, company announcements, and economic indicators for the stocks you have invested in.

By aggregating news related to your portfolio, Tickertape ensures you’re always informed about factors that could affect your investments. This helps you stay ahead of potential market shifts and make more informed decisions. You can even turn on ‘Alerts’ for your favourite stocks!

Apart from these features, Tickertape Stock Portfolio offers insights into your stock portfolio, metrics, redflags, smallcases, and more. Connect your portfolio now to get detailed insights!

Effectively manage your mutual portfolio with Tickertape

You can now effectively manage your mutual fund portfolio with Tickertape! Managing your mutual fund portfolio effectively can greatly enhance your investment returns and financial stability. Let’s dive into how these features can help you understand and manage your mutual fund investments better.

Connect Your Mutual Fund Portfolio

Getting started with Tickertape is easy. Simply go to the homepage, click on ‘Portfolio’, choose ‘Mutual Funds’, and then click ‘Connect’. It will require you to enter your PAN and mobile number linked to your mutual fund account. Enter the OTP and you are done. Now, let’s look at what you can do with it – Tickertape answers the following questions:

1. Is Your Mutual Fund Portfolio Well Diversified?

If you’re curious about the diversification of your mutual fund portfolio, Tickertape’s Diversification Score can give you clear insights. This feature provides a detailed view of how diversified your mutual fund portfolio is compared to others.

It identifies the strengths and weaknesses in your current fund holdings and showcases the community’s fund compositions across hybrid, equity, and debt categories. You can see the median asset allocation of users with a Diversification Score above 70, helping you understand how to improve your own diversification. This includes a breakdown of asset allocations in percentages for equity, debt, commodity, hybrid, and others, along with the top 5 popular funds in each category.

By exploring these community portfolios, you can find new investment opportunities and strategies to improve your own portfolio’s diversity and robustness. Access to this detailed asset allocation of users with high diversification scores is available as a Pro feature.

2. What Are the Rankings of Your Mutual Funds?

It’s important to know how your mutual funds are performing within their respective categories. It helps you make informed decisions to optimise your investment returns and manage risk effectively. Tickertape’s Ranking Analysis lets you see how your current holdings stack up alongside the top funds in each segment. You can view detailed rankings based on return, cost, and volatility for various categories and sub-categories such as equity, debt, and hybrid funds.

You can customise your view by selecting between 1-year, 3-year, and 5-year return ranks, as well as volatility ranks. This allows you to easily identify which funds are performing well and which ones might need rebalancing. Additionally, you can see the top-performing funds in each category. It gives you insights into potential new investments.

By utilising this feature, you can ensure your portfolio is optimised for the best performance. 

3. How Has Your Portfolio Performed Over Time?

To gauge the success of your investments, it’s crucial to track your portfolio’s performance over time. Tickertape’s Performance Analysis provides insights into your overall portfolio performance and fund-level analysis, helping you understand where you stand.

Overall Portfolio Performance

Evaluate your portfolio’s performance across various time frames: since inception, 6 months, 1 year, 3 years, 5 years, and since 2015. Tickertape’s XIRR Analysis compares your portfolio’s returns with relevant benchmarks. It gives you a clear view of your investments’ real returns. This helps you understand how well your portfolio is performing relative to market standards.

Fund Level Analysis

Tickertape’s Fund Level Analysis allows you to see how individual mutual funds in your portfolio are performing compared to their category averages. You can select categories like equity, debt, commodity, hybrid, and others to view funds that are over performing or underperforming their respective benchmarks. This helps you identify which funds are doing well and which might need rebalancing.

Isn’t it simplified to optimise your mutual fund portfolio easily? Now, let’s look at how to optimise your portfolio for tax efficiency. 

4. How Can You Achieve Tax-Efficient Investing?

Understanding the tax implications of your mutual fund investments is crucial for optimising your returns. Tickertape’s Tax Efficiency section provides key insights into tax-saving investments, tax planning, and optimised redemption suggestions.

Tax Implications on Your Funds

Tickertape helps you understand how taxes impact your mutual fund investments.

Portfolio Level Analysis

Tickertape calculates the total tax on your portfolio by summing up the STCG and LTCG for all your funds, helping you estimate your overall tax outflow and plan accordingly.

Fund Level Analysis

Tickertape provides a detailed tax breakdown for each of your funds, showing:

• Expected Tax Outflow: Calculate based on short-term and long-term capital gains.
• Fund Performance: Compare the performance of your funds relative to tax efficiency, identifying which funds are most tax-efficient.

ELSS Handling

ELSS funds come with a three-year lock-in period, offering tax benefits under Section 80C. Early redemption can lead to penalties and loss of tax benefits. Tickertape highlights:

• Eligible ELSS Funds: Identify which ELSS funds are eligible for tax benefits.
• Lock-In Period: Track the lock-in period for your ELSS investments to avoid premature redemptions.

Maximise Your 80C Savings

Tickertape helps you make the most of Section 80C benefits:

• Track ELSS Investments: Monitor your ELSS investments against the Section 80C limit.
• Identify Investment Gaps: See how much more you can invest in ELSS to reach the 80C limit.
• Top ELSS Recommendations: Get suggestions for top-performing ELSS funds to maximise your tax savings.

5. Does Your Portfolio Carry Risk?

If you understand the potential risks in your investments, it helps you make informed decisions to mitigate risks effectively. Tickertape’s Red Flags feature highlights funds with significant risks in their underlying investments.

It identifies mutual funds in your portfolio with significant holdings flagged for potential risks. You can see the number of such funds and the percentage they represent of your total portfolio, for example: “We spotted potential red flags across X funds in your portfolio contributing to Y% of its total portfolio.”

For each flagged fund, Tickertape provides:

1. Name of the Fund
2. Count of Red Flag Holdings: Number of risky holdings within the fund.
3. Percentage of Holdings: Portion of the fund’s holdings that are flagged as risky.

Additionally, you can click on the fund to check its holdings and red flags.

If no significant red flags are found in your portfolio, it indicates that your current selection is sound.

Apart from the mentioned features, Tickertape Mutual Fund Portfolio offers you insights into your holdings, its breakdown by categories, sub-categories, and industry, and a detailed breakdown of profit and loss of your holdings. Connect your portfolio now for easy analysis and mitigate risk effectively! 

Portfolio plan

A portfolio plan consists of what the portfolio comprises, expected timescales, major deliverables, and its major dependencies in words and diagrams. It defines how the portfolio will be managed.

Portfolio risks

Portfolio risks typically cover the internal and external events that might impact the portfolio. There are various portfolio risks and numerous approaches to measuring portfolio risk. It should be the responsibility of a portfolio manager to assess and invest in the assets according to an individual’s risk appetite while minimising the risk.

Importance of portfolio management

Better investment planning: With portfolio management, analysis of past investments becomes easier, which helps better frame future investments. It also considers the risk appetite, income, and budget. As a result, an investor can take an informed and sensible investment decision. 

• Customisable solution: When managing the portfolio, an investor gets the opportunity to plan for the specific goals that they might have. It allows them to customise the strategies, risks, and expected returns accordingly.
• Minimises the risk: With proper planning and timely execution, it becomes possible to reduce the risk of the investment strategy, increasing the chances of making profits. Taking an expert’s opinion and getting a deeper understanding of the risks is always worthwhile.
• Reduces cost and saves time: For investors who may not have a sound financial background, they might find it challenging to manage their finances. When not done in the right way, it can be a costly expense and take up a lot of time to rebalance. Hence, portfolio management can go a long way in protecting an individual’s finances.
• Tax planning: Taxes can drain an individual’s income. When planning for a portfolio, an investor can design the investment plan in a way that helps them save taxes. Hence, a well-researched and managed investment plan can go a long way.

Who is a portfolio manager?

A professional responsible for an investor’s portfolio management is a portfolio manager. They understand the investor’s financial goals and construct a suitable investment plan in line with their constraints to generate maximum returns.

What does a portfolio manager do?

Portfolio managers’ primary goal is to add value to their clients’ portfolios. Here are six steps that define their work in brief.

1. They start by determining their client’s objective, which includes the returns expectations and risk tolerance levels. Based on the client’s financial goals and situation, portfolio managers decide on the most suitable asset classes available in the market.
2. To get the client’s desired returns with risk tolerance levels, the managers conduct Strategic Asset Allocation (SAA). In this, they set the weights for each asset class. For instance, 45% for bonds and 55% for equities. This stage requires periodic rebalancing.
3. After the SAA, managers perform Tactical Asset Allocation (TAA) and Insured Asset Allocation (IAA). Both of them are different ways of adjusting the weights of assets like SAA during the investment period.
4. IAA adjusts asset weights depending on the client’s existing wealth at any specific point in time. TAA makes changes depending on the capital market opportunities. 
5. With the selection of weights for each asset class, portfolio managers have control over the amount of different risks, such as security selection risk, style risk, and TAA risk.
6. Security selection risk arises from the manager’s SAA actions. Style risks arise from the manager’s investment decisions/style, while the TAA risks can only be avoided by choosing the same systematic risk – beta – as the benchmark index. 

Portfolio managers measure the portfolio’s performance using various ratios and models. It enhances the portfolio to meet the goals of maximising returns and minimising risks.

Who should avail portfolio management services?

• Individuals with a limited understanding of how the market works.
• Investors looking to diversify their investments across stocks, bonds, mutual funds, and other asset classes but don’t possess a sound understanding of how the process works.
• Investors who lack time to monitor and track investments and the market developments that impact them.

Difference between portfolio management and financial planning?

Both the terms portfolio management and financial planning are often used interchangeably. However, there are a lot of differences between the two. Here are four major differences that you must be aware of.

Element	Financial planning	Portfolio management
Aim	Financial planning is about understanding an individual’s financial situation and goals and developing long-term financial goals accordingly. It is a more thorough process than portfolio management.	Portfolio management is focused on building a portfolio consisting of securities that match an individual’s goals and managing it. It is a regular process.
Scope	It includes various areas such as building an emergency fund, saving for a new home, accumulating assets for retirement, saving for a child’s college fund, reducing debt, real estate planning, creating tax efficiency, and more.	It is concerned with the curation and management of a portfolio according to the risk appetite and the individual’s short, mid, and long-term goals.
Assessment	It assesses the individual’s overall financial standing to develop a long-term financial plan based on their goals.	It involves the assessment of multiple components of a portfolio to make investment decisions, such as to invest or divest.
Manager	A financial planner or advisor assists in financial planning. They are also called wealth advisors who give advice and help enhance their clients’ financial situation.	An investment manager is concerned with only the portfolio of the client. They intend to enhance it and make trades on behalf of their clients.

Portfolio management can be considered a subset of financial planning as the current capital is invested and managed in accordance with the future goals of an individual.

Tips for healthy portfolio management

• Goals and strategy: The first step in devising an investment plan is to find out your goals. Make sure your goals are achievable. They can change over time. Hence, make sure to assess how it will impact your overall strategy. Further, keep your risk-tolerance levels always in mind.
• Asset allocation: The right mix of investment types makes up for an effective asset allocation which is based on various factors like goals, risk appetite, budget, etc. Balance your portfolio in a way that you insulate it against sudden changes in the market.
• Diversify: You can spread your risks by selecting investments across a broad spectrum of market categories. Diversification helps you reduce the volatility of your portfolio over time. 
• Long-term investments: One of the key elements of a financial plan is to plan for retirement and other long-term goals. Keep track of how your investments affect your plans to achieve your goals. This way, you can steer clear of past mistakes and build wealth for the future.
• Have support: You can enhance your financial planning and get a deeper understanding of investments with the help of an expert. Do not hesitate to ask for help from professionals. You might end up saving your money, time, and efforts.

In a nutshell

Portfolio management can be tedious, but it saves your money, tax, time, and effort and builds your wealth. It helps you secure your future and manage your finances better. However, thorough research about the market is a crucial element at all stages of portfolio management. Tickertape provides you with all the tools you need to make wise investment decisions. Explore it now!

Frequently asked questions (FAQs) on Portfolio management