How Risk-Based Supervision System Works?
In the previous article, we have already studied what risk-based supervision is. We now know why regulatory bodies all across the world are adopting the risk-based supervision system and what its benefits are. However, it is also important to understand the manner in which a risk-based supervision system can be implemented. The details of the […]
Net Present Value Calculations
The net present value (NPV) is the most important concept in corporate finance. It is on the basis of this concept that investment decisions are made or not made. It is on the basis of this concept that stocks and bonds are valued. Thus, it is an absolute imperative for any student of corporate finance […]
Infrastructure Finance: An Introduction
Traditional economists are of the opinion that infrastructure is the heart of the economy. Empirical data clearly shows that given a choice, investors prefer to invest their money in countries whose infrastructure is more developed. Hence, it can be said that rapid infrastructure development is one of the most basic ways in which a country […]
Why Does the Stock Market Crash?
February 2018 has been a bad month for the United States stock market. In just two consecutive trading days, the market crashed by more than 1500 points. As a result, all the incremental gains that were made in January 2018 were simply wiped out within these two days. It would be incorrect to say that […]
Pension Funds and Income Redistribution
The purpose of pension funds is to ensure that the wealth created by an individual is invested and distributed in such a way that they can afford to maintain their standard of living throughout their lifetime. Pension funds have become a very important tool for retirement planning. An average pensioner plans to survive almost twenty […]
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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