Investment Management

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Meaning and definition of investment management

Investment management refers to the professional management of different securities and assets so as to meet specified investment goals for the investors’ benefits. Investors may include private investors as well as institutions. Investment management is, moreover, a huge and essential global industry in its own right accountable for caretaking of trillions of dollars, yuans, pounds, euro, and yen.

Process of investment management

The process of investment management can be understood in the following steps:

  • Specification of investment objectives and constraints

Investment needs to be directed by a specific set of objectives. The primary objectives taken into consideration by investors include capital appreciation, safety of principal, and current income. The main aspect affecting the objectives is risk. Some investors are risk takers unlike others who try to reduce risk. Recognizing constrains occurring from time horizon, liquidity, tax, and special situations are essential to be addressed.

  • Choice of asset mix

In investment management, the most vital decision is related to the asset mix decision. It deals with the proportion of equity shares or funds arising from equity shares. The arrangement on the number of bonds and stocks relies upon the investor’s risk tolerance. This step also includes which classes of asset investment will be placed and also evaluates the securities to be purchased

  • Formulation of portfolio strategy

After the selection of the stock-bond combination, it is imperative to formulate a appropriate portfolio strategy. Portfolio strategies feature two types – active portfolio strategy and passive portfolio strategy.

  • Selection of securities

Investors generally select stocks after a wary fundamental and technical analysis of the security of their interest. In case of bond liquidity, credit ratings, tax shelter, yield and term of maturity are considerable factors.

  • Portfolio execution

This step includes implementation of the formulated portfolio strategy by sale or purchase of securities in certain amounts.

  • Portfolio revision

The value of portfolio changes due to fluctuation in the prices of bonds and stocks thus demanding a rebalancing of portfolio at different times.

  • Performance evaluation

It is also important to evaluate the performance of portfolio at different time intervals thus helping the investor to realize if the risk and return are proportionate. 

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