What Is The Importance Of Portfolio Management?

Introduction - What Is Portfolio Management?

Investing in the market does not mean putting money in stocks, bonds, ETFs, etc. The real challenge arises when the investment amount is substantial, making it difficult to manage across different securities. Also, simultaneously balancing risk, return, and time so your money consistently works for you is important. And that's where the need of portfolio management arises.

In simple terms, Portfolio Management is the art and science of managing your investments to maintain a proper risk-return balance. So, whether it is stocks, bonds, currencies, mutual funds, or alternative assets, PMS aligns these assets with your financial goals, risk appetite, and time horizon.

Think of it as having a roadmap for systematically building your wealth instead of scattered investments.

Further, in this blog, let us explore the importance of portfolio management, who should be investing, its types, the benefits of investing in PMS, and much more.

Importance Of Portfolio Management

According to a report, 43% of the HNIs (High net worth Individuals) save less than 20% of their income. Being financially literate and globally aware, 82% still feel the urge to have customized, organized, and personalized financial services - who can help with diversification, customized asset allocation, and reduced risk-appetite.

With that, let us explore some more reasons for the importance of portfolio management:

• Customized services

  Lack of personalization is the main reason why many HNIs are looking for professional services. A report states that 31% of HNIs complain about advisors not being able to understand their situations and recommend tailored solutions. This gap highlights the role of PMS in offering customized services.
  
  PMS allows you to plan and suggest solutions apt to your financial goals. It brings in customization in asset allocation and diversification techniques as well.

• Risk Diversification

  You can either invest in one instrument and take on extreme risk, or distribute it among many assets. And that's the role of portfolio management in your investments. It creates enough space for diversification so that risk doesn't stick to one investment.
  
  Portfolio managers ensure you have a balance of high-risk and low-risk investments. It helps optimize your risk exposure to achieve the desired level of returns.

• Tax Efficiency

  Taxes are meant to deplete your income, goes a popular saying. Portfolio managers structure investments in a way that helps improve tax efficiency and reduce avoidable liabilities. With that said, HNIs can gain from most of the tax laws and still grow their investments.

• Investment Planning

  Being wealthy doesn't always translate to better investment planning, be it in India, for that matter. Taking reference from the same report, 21% of HNIs still share a poor understanding of the investment options.
  
  To solve this, Portfolio management allows Licensed portfolio managers evaluate your overall financial position and curate strategies aligned with your goals, age, and income stability. Later, you can make a decision considering your age factor, income stability, and budget constraints.

• Cost-Efficient Structuring

  By consolidating and structuring investments, portfolio management reduces inefficiencies, transaction overlaps, and hidden opportunity costs, thereby improving net returns after expenses.

Types Of Portfolio Management

Majorly, there are three types of PMS services available in India. It includes;

• Discretionary Portfolio Management

  In this PMS-type model, the portfolio manager takes full control of investment decisions on behalf of the client. Based on the agreed strategy, the manager buys, sells, and reallocates assets without needing prior approval each time.

• Non-discretionary Portfolio Management

  Here, the portfolio manager recommends investments, but the final decision rests with the investor. The manager acts more like an advisor and executor, while you stay actively involved in approvals.

• Advisory PMS

  In this type, the manager only advises on investment opportunities. Here, execution of trades is entirely done by the investor.

Who Should Invest in Portfolio Management?

The real question of who should invest in portfolio management lies in your market understanding and investment goals. If you have a minimum corpus of ₹50 lakh invested, portfolio management turns crucial for you.

Other reasons as to who should consider PMS include;

• HNIs want to invest in a multi-asset portfolio consisting of various securities.
• They require tailored investment solutions to meet their financial goals.
• Those HNIs who lack the time and expertise to monitor and rebalance their portfolios.
• Lack of experience in handling market volatility and being incapable of safeguarding their investment in such times.

Benefits Of Professional PMS vs DIY Investing

While managing investments on your own may seem appealing, professional Portfolio Management Services (PMS) offer a clear edge in expertise and professionalism. Let us look at this quick comparison of how PMS differs from traditional DIY investing:

Conclusion

Portfolio management is assumed to be a professional service for handling investments. But, in reality, it is about building an investment strategy that is customized, tax-efficient, and diversified. That’s what brings in the need of portfolio management for those holding extreme wealth, especially HNIs and Ultra HNIs.

If you, too, feel the urge to invest in PMS online services, do consider consulting a professional for more guidance.

Disclaimer: The information provided in this article is for educational and informational purposes only. Any financial figures, calculations, or projections shared are solely intended to illustrate concepts and should not be construed as investment advice. All scenarios mentioned are hypothetical and are used only for explanatory purposes. The content is based on information obtained from credible and publicly available sources. We do not guarantee the completeness, accuracy, or reliability of the data presented. Any references to the performance of indices, stocks, or financial products are purely illustrative and do not represent actual or future results. Actual investor experience may vary. Investors are advised to carefully read the scheme/product offering information document before making any decisions. Readers are advised to consult with a certified financial advisor before making any investment decisions. Neither the author nor the publishing entity shall be held responsible for any loss or liability arising from the use of this information.