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Portfolio Managemt Strategies | Types | And A Comparision

Whether it is a mutual fund or personal investment.  At last portfolio is a portfolio. No difference. Without strategic portfolio management, it’s very difficult to achieve the target. Investment into different asset classes like equity, debt, gold and cash will give the returns of different percentages and at different time periods. So, there is a need to manage, the balance between different asset classes. That’ where a strategic portfolio management plays a vital role.


STRATEGIES

Active Strategy

An active portfolio management strategy focuses on outperforming the related specific benchmark index that comprises of the assets in the portfolio. Either an individual investor /a broker /a mutual fund, the strategy remains same. Just outperforming the specific related Benchmark Index.

Suppose you might have come across the news that, BSE Midcap Index has fallen by 12% since the beginning of 2018. And’ all the Midcap Mutual Fund Schemes have fell lower than their respective benchmarks. But, Axis Midcap Scheme shown positive return of 0.74% from Jan’18 to June’18.

How it Works

Let’s better to explain with an example.

An investor  Mr. Gentleman aged 40 years has invested his savings of Rs. 10,00,000 in different asset classes as follows.

 

Initial

Asset Allocation

Amount Active

Asset Allocation

Amount
Equity

Debt

Gold

Cash

4,00,000

2,00,000

3,00,000

1,00,000

Equity

Debt

Gold

Cash

2,50,000

3,50,000

3,50,000

50,000

After allocating the total amount to gain under different classes, there was a signal of equity market down-trend. Then, to save his corpus, he planned to reduce the amount of equity exposure. So, he reduced the equity amount from 4  lakh rupees (40%) to 2.5 lakhs (25%). And, to safeguard his return, he transferred that amount to debt and Gold.

Here, the investor /portfolio manager has applied the active portfolio management strategy by timing the markets. And, trnsformed the existing portfolio to the new strategic portfolio comprised of same asset classes but with different asset allocation percentages. Sometimes, the strtegic portfolio management brings in new asset classes by the investors /portfolio managers, which they expected to be the best future performers.

After a year, his expectation got true and market had underperformed by 40%. That has similar effect on his equity investment. So he lost  Rs. Rs. 1,00,000 in equity and  instead of Rs. 1,60,000 if he might have invested Rs. 4,00,000. So, more exposer to the debt and gold has earned him more money in the form of interest and gold price appreciation. That’s how the strategic portfolio has saved him from big equity loss and earned extra money.

For each strategy there is always a second side of possibility. Let’s consider the scenario that markets moved forward and up by