Understanding Portfolio Management: Risks and Returns

1.0 Introduction:

The concept of portfolio derives from the fact that when several investments are combined – rather than putting all the eggs in the same basket. Portfolio management is art of making decisions about investment policy and collections of something’s in anticipation balancing the risk and maximize the returns. We cannot talk about portfolio returns without talking about risk because investment decisions invariably involve a trade-off between the two. Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. The major sources of risk are: business risk and market risk.

2.0 company profile:

Anand Rathi is a leading financial services firm covering the entire gamut of investors.

In her opinion most of the investors are ‘risk averse’.

 David.L.Scott and William Edward (1990), in their book titled, ‘Understanding and managing investment risk and return’. They commented that the severity of financial risk depends on how heavily a business relies on debt. Financial risk is relatively easy to minimize if an investor sticks to the common stocks of company.

 Lewis Mandell (1992) reviewed the nature of market risk; he concluded that market risk is influenced by factors that cannot be predicted accurately like economic conditions, political events, mass psychological factors, etc. market risk is the systemic risk that affects all securities simultaneously and it cannot be reduced through diversification.

 Nabhi Kumar (1992), in his book titled, ‘How to earn more from shares’, has advised that buy shares of a growing company of a growing industry rather going for portfolio.

 Aswath Damodaran (1996), reviewed the ingredients for a good risk and return model

They reported that the BSE has strengthened the risk management measures to maintain the market integrity.

 Rukmani Vishwnath (2001), ‘DDS working on risk management model’, from the review of literature it is obvious that emotions rule the market, but whether emotional buying and selling are influenced by factors like experience in the stock market operations remains to be answered.

 Ananth Madhavan and Jian Yang (2003), in their article titled, ‘Practical risk analysis for portfolio managers and traders’. This article provides a detailed overview of recent development in risk analysis and modeling with a focus on practical application for both portfolio managers and traders.

 Reyck (2005), in their article titled, ‘The impact project portfolio management on information technology projects’, revealed that entire collection of projects , where which projects are to be given priority and which projects are to be added from the portfolio.

 Thiry.M (2006), in his article titled, ‘Recent developments in project based organization’, has defined portfolio management as the process of allocating and analyzing the organization resources to achieve corporate objectives and maximize the organization stake