What Is The Process of Portfolio Management?

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Having a well – balanced portfolio containing the right mix of assets is one of the best financial decisions one can take in his / her life. Let’s know about What Is The Process Of Portfolio Management?

Before knowing about the process, let’s understand the meaning of portfolio management services. PMS is the abbreviation of Portfolio Management Services, it is the investment in securities managed by the portfolio manager to meet the financial goal of its clients.

Know PMS Features, PMS Charges, and PMS Review.

But another important thing to do is to manage the portfolio according to one’s requirements and risk appetite.

Before knowing the What Is The Process of Portfolio Management? It’s good to know How important is portfolio management?

There are different ways to do portfolio management. In this article, we shall discuss the different ways of managing a portfolio and how to actually manage a portfolio in the most efficient manner.

Ways of Portfolio Management

There are mainly 4 ways of managing a portfolio or Types of PMS

      1) Passive Portfolio Management

This is one of the easiest ways of portfolio management. It can involve investing in an index fund. It is also the cheapest way of portfolio management, as there are costs related to other types of portfolio management techniques.

It is better for long-term investors than short-term or medium-term investors as there is less volatility in the long run.

2) Active Portfolio Management

This is one technique which involves constant buying and selling of different kind of assets to earn good returns.

The aim of the active management of the portfolio is to generate better returns than the market.

This strategy is suitable for investors who are willing to take higher risks for earning good returns.

3) Discretionary Portfolio Management

In this type of management, the fund manager has complete control over an individual’s portfolio and manages it accordingly.

The task is in the hands of a professional is the biggest advantage of this technique. This is appropriate for those individuals who do not have enough time/knowledge about how to manage portfolio effectively.

4) Non – Discretionary Portfolio Management

This type of approach involves taking the guidance of a financial advisor who cannot take any investment-related decision before taking a client’s permission.
Therefore, it has the advantage of professional advice, along with having complete control over your portfolio.

All the different kinds of portfolio management ways have their own pros and cons. One can choose according to his / her preferences. Now, let us see how the actual process of portfolio management takes place.

That is why you should know Why Do You Need Portfolio Management and clear your doubts.

Process of Active Portfolio Management

The actual process of portfolio management involves a number of steps. You need to pay attention and devote an ample amount of time at every step in order to effectively manage your portfolio and get a good return.

Let us discuss the different steps involved in portfolio management

     1) Clarity on Financial Objective

The first and foremost thing one needs to do is to clearly write his / her short to medium – term as well as long -term financial goals. This would be helpful in determining the kinds of assets of one’s portfolio.

One should try to jot down all the sources of income and all the financial obligations that he/she needs to meet. The clearer the picture of these things, the better would be the management of the portfolio.

2) Building the Actual Portfolio

After the first step of planning, another important task begins. This is the selection of assets in which funds need to be allocated.

This step is the most important one and should be done with extreme caution and care. This step consists of many tasks that need to be thought about and done.

First of all, a list of all available asset classes should be prepared. Along with this, expectations from these assets should also be noted down.

Expectations can be calculated by analyzing the different macroeconomic as well as microeconomic factors. Secondly, all the asset classes should be reviewed, along with their risks and returns.

The risk appetite of an investor depends on many factors like age, monthly income, financial obligations, etc. A young salaried individual can afford to take more risks as compared to a retired individual.

Also, another important thing to consider while the selection of asset classes is diversification. It means that the allocation of funds should be done in such a way that if one asset class does not perform good or gives losses, the other non -correlated asset class covers up for the first one.

     3) Monitoring of the Portfolio

No matter how well you have done the above – mentioned two steps, if you do not monitor your portfolio at regular intervals of time, it might not give you the desired returns.

This is the feedback system. You need to check if your portfolio is giving returns according to the expectations. If not, then there are a number of things that can be done to make it work

One of the things that can be done is changing a particular asset class or security if it has not been performing well.

This change might be needed even if there is a change in the individual’s financial situation.

Reviewing the portfolio should be a regular exercise and any discrepancy should be addressed in a timely manner.

This would avoid big losses and would give opportunities to invest in better return generating financial instruments.

Also, know about What Is Portfolio Rebalancing And Why Is It Important? and minimize the risk.


Building a portfolio and managing is a time – consuming process but is necessary. Portfolio management can be done passively, actively, discretionary, and non – discretionary ways.

The financial objective should be clear before the process of portfolio management, as it involves many steps and is explained briefly.

For clearing the financial objective, create a list of the obligations that you have and proceed accordingly.


Good planning is half work done. So, plan well and play well in the financial markets.

In case you are looking to use Portfolio Management Services, let us assist you in taking the next steps forward. Just fill in some basic details in the form below:

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