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Basics
PORTFOLIO
MANAGEMENT
2
Objectives of Portfolio Management
Ensuring safety of
Ensuring stable
principal amount
income
invested
Ensuring ample
Ensuring capital
liquidity in the
growth
portfolio
Diversification to
reduce risk
3
Strategies in Portfolio Management
4
Passive Management Strategies
Growth of Global ETFs
• Over the past 10 years, Assets under Management (AUM) of ETFs across the
globe has grown exponentially with assets of US$ 4.1 trillion as on July 2017.
• AUM of Global ETFs is expected to touch US$ 7 trillion by 2021.
In the above chart, bars represent AUM and the line represents number of ETFs.
Data Source: www.etfgi.com. Data as on July 31, 2017.
5
Aim of Portfolio Management
Optimal balance between Return and Risk
Return Risk
Returns are calculated in Absolute Terms for Returns are calculated in CAGR terms for
periods up to 1 year periods more than 1 year
Investment Period - 8 months Investment Period – 3 years
Particulars Amount Particulars Amount
Cost of investment 1,00,000 Cost of investment 1,00,000
Proceeds from sale of investment 1,20,000 Proceeds from sale of investment 1,40,000
ROI (Absolute terms) 20% ROI (CAGR terms) 12%
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Measures of Risk
Standard Deviation (SD)
• Measure of Total Risk of the Portfolio.
• Measure of dispersion from mean value.
• In terms of returns, SD is the deviation of actual return from expected normal
returns.
• Higher SD means Higher Risk.
40%
30%
20%
10%
0%
1 year 3 years 5 years 10 years
-10%
9
Valuations
Price to Earnings Ratio (P/E)
• Ratio of Price of a stock relative to its Earnings Per Share (EPS).
• P/E = Price of stock
EPS
10
Examples from
Real Investment Portfolios
ICICI Prudential PMS Flexicap Portfolio
12
Utility of Financial Accounting in
Portfolio Management
Fundamental Analysis using
Financial Statements
Eicher Motors Ltd.
32% CAGR
growth in PAT
over last 4 years
Huge surge in
cash flow from
operating
activities
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