Financial Management: Meaning, Scope, Objectives & Functions
Meaning of Financial Management Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Scope/Elements of Financial Management Investment decisions includes investment in fixed assets (called as capital budgeting). Investment in current […]
The Stages of Descent into Bankruptcy
Bankruptcy is a common phenomenon in the business world. There have been many cases wherein the stalwarts of yesterday, the companies which were running multi-billion dollar profits, have later filed for insolvency. For the benefit of the readers, let us define bankruptcy. Bankruptcy is the stage at which companies find it financially unviable to function. […]
John Law and the Mississippi Bubble
The Mississippi bubble is one of the biggest asset bubbles known to the modern world. This bubble first led France out of bankruptcy and straight into prosperity. Then this same bubble caused the opposite to happen, bankrupted France and gave an impetus to the revolution. This bubble was created when John Law, a renegade Scotsman […]
Pros and Cons of Relationship Banking
In the previous article, we studied what relationship banking is and how it is different as compared to transactional banking. The relationship banking model has become very popular, particularly in the field of commercial banking. It is important to understand the pros and cons of relationship banking in order to have enough information to make […]
Use Cases of Artificial Intelligence in Commercial Banking
In a previous couple of articles, we have already seen how artificial intelligence is useful in the field of commercial banking. We have also seen the various advantages and disadvantages of deploying artificial intelligence in commercial banking lending. However, it needs to be understood that lending is not the only department in commercial banking that […]
A combination of various investment products like bonds, shares, securities, mutual funds and so on is called a portfolio.
In the current scenario, individuals hire well trained and experienced portfolio managers who as per the client’s risk taking capability combine various investment products and create a customized portfolio for guaranteed returns in the long run.
It is essential for every individual to save some part of his/her income and put into something which would benefit him in the future. A combination of various financial products where an individual invests his money is called a portfolio.
The art of changing the mix of securities in a portfolio is called as portfolio revision.
The process of addition of more assets in an existing portfolio or changing the ratio of funds invested is called as portfolio revision.
The sale and purchase of assets in an existing portfolio over a certain period of time to maximize returns and minimize risk is called as Portfolio revision.
There are two types of Portfolio Revision Strategies.
Active Revision Strategy involves frequent changes in an existing portfolio over a certain period of time for maximum returns and minimum risks.
Active Revision Strategy helps a portfolio manager to sell and purchase securities on a regular basis for portfolio revision.
Passive Revision Strategy involves rare changes in portfolio only under certain predetermined rules. These predefined rules are known as formula plans.
According to passive revision strategy a portfolio manager can bring changes in the portfolio as per the formula plans only.
Formula Plans are certain predefined rules and regulations deciding when and how much assets an individual can purchase or sell for portfolio revision. Securities can be purchased and sold only when there are changes or fluctuations in the financial market.
Aggressive Portfolio consists of funds that appreciate quickly and guarantee maximum returns to the investor.
Defensive portfolio consists of securities that do not fluctuate much and remain constant over a period of time.
Formula plans facilitate an investor to transfer funds from aggressive to defensive portfolio and vice a versa.
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