Group 2 Mutual Fund PDF

**GROUP 2 MUTUAL FUND** **1. What is Portfolio Management?** ** **To make the most of one's investment portfolio investors must participate actively in portfolio management. By doing so, they will not only be able to risk their resources against market risks but will also be able to maximise their...

**GROUP 2 MUTUAL FUND** **1. What is Portfolio Management?** ** **To make the most of one's investment portfolio investors must participate actively in portfolio management. By doing so, they will not only be able to risk their resources against market risks but will also be able to maximise their returns successfully. Portfolio management is the process of selecting and overseeing a group of investments that align with an investor\'s financial goals, risk tolerance, and investment horizon. It involves making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance. The overall aim is to maximize returns while managing risk. **2. Aspects of Portfolio Management** **Asset Allocation**: This refers to the strategy of dividing an investment portfolio among different asset categories, such as stocks, bonds, real estate, and cash. The goal is to optimize the balance between risk and reward based on investment objectives and risk tolerance. **Diversification**: Diversification involves spreading investments across various assets to reduce risk. By investing in a range of asset classes and securities, the impact of a poor-performing investment can be minimized, thereby enhancing the stability of the overall portfolio. **Rebalancing**: This is the process of periodically realigning the weights of the assets in a portfolio. Rebalancing ensures that the asset allocation remains in line with the investor\'s original goals and risk appetite, particularly after price changes lead to an imbalance in portfolio composition. **Risk Management**: This aspect involves identifying, assessing, and mitigating the risks involved in the portfolio. Effective risk management strategies might include using derivatives for hedging, setting stop-loss orders, and maintaining a diversified portfolio to cushion against potential losses. **Performance Management**: This involves the regular assessment of the portfolio\'s performance against benchmarks or predetermined goals. It includes measuring returns, analyzing the strategies used, and making adjustments to improve future performance. **3. Two Kinds of Portfolio Management** **Active Portfolio Management**: This approach involves a hands-on strategy where managers frequently make buy and sell decisions based on market conditions, economic indicators, and company performance. The goal of active management is to outperform a specific benchmark or index by taking advantage of market inefficiencies. It requires significant research, analysis, and market knowledge. **Passive Portfolio Management**: In contrast, passive portfolio management involves a more hands-off approach. Investors adopt a buy-and-hold strategy that typically involves tracking a market index rather than trying to outperform it. This approach requires less frequent trading and aims to replicate the performance of the benchmark index over time, usually resulting in lower fees and expenses.