What Are The Steps Involved In Portfolio Management Selection?

Portfolio management is defined as a product that allows an investing company or individual to invest in a certain mix of assets that accrue returns against a given level of risk or minimize risks against a given level of returns. In practice, it refers to the practice of investing money in a wide range of financial assets, such as shares, debentures, and securities, as well as physical assets, such as gold and real estate.

To manage an efficient portfolio, portfolio manager seeks to maximise their returns in line with the degree of portfolio risk accepted by the investor. Any portfolio manager’s goal is to minimise risks while giving the investor the highest possible returns. This process, as you can imagine, is highly complex, given the multiplicity of assets and the variability in their risk-to-return ratios.

In this blog, we’re breaking down the product portfolio management services, and briefly explain the factors to consider for selection:

1. Identification of objectives and constraints:

The first step in the process of portfolio management is to assess the objectives and constraints of the fund manager. Fund Managers outline the objectives in the details shared about their PMS. Does this objective meet your requirement or what you wish to achieve from this investment?

2. Selection of the strategy:

After the objectives of the fund managers for his portfolio are identified, the next step is to select the strategy that suits your investment goal and risk tolerance. Depending on the strategy, a fund manager can choose to spread out the risks among equity shares, bonds, gold bonds, debt shares, etc., with the overarching goal of meeting the objectives.

3. Assessing the Track Record:

Once the strategy is decided, you have formulated a investment strategy for the best portfolio management services. Next step is to review the track record of the portfolio manager and the selected strategy. Consistency of the portfolio manager’s performance over the years needs to be reviewed.

4. Team Size:

Portfolio Management Services are being offered by several companies, once the company becomes more established the team size grows, process become standardized. This is essential as in case the key fund manager exits or is unavailable for any reason, the portfolio is not affected. Larger teams have their roles and objectives defined which is more clearly process and strategy driven.

5. Deployment Strategy:

This step is where the action really starts. You need to decide how your investment needs to be deployed. Portfolio Management Services have 2 options for deployment – Lumpsum or STP. In Lumpsum, your entire capital is invested in one go, as for STP, the capital is invested in a staggered manner.

6. PMS Management Fees:

Portfolio Management Services charge a management fee. This management fee also has 2 options – Fixed Fee or Performance Fee. In Fixed Fee, the PMS will charge you a fixed fee on your portfolio annually, as for Performance Fee, the PMS will charge you based their out performance of the benchmark.

7. Portfolio evaluation:

Finally, you should evaluate the performance of the portfolio over a selected period of time. This performance can be assessed based on several parameters such as comparing with the performance of other PMSs with similar strategy, risk and return criteria of the asset mix, adherence of the portfolio to the investment objective, etc. This kind of evaluation gives critical feedback on performance of the portfolio.

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