Question

List and explain the objectives of the investment portfolio at a bank. Give examples of specific investments and explain how each one might help with one or more objectives.

Answer 1

Investment Portfolio management refers to the analysis of various investment opportunities, selection and formation of the most suitable investment blend to fulfil the objective, revision and evaluation of the investment portfolio from time to time and implementation of the required changes.

Investment portfolio needs to be planned considering the various factors related to the investor’s attributes. The significant factors influencing investment portfolio management are discussed below:

• Time Span: Type of investment is selected by the period for which the investor is willing to invest the sum. Investment in stock and equity must be for long-term to yield high returns.
• Age of Investor: The age of investor decides the type of investment, risk-taking ability and the returns yield. A young investor may be able to take a high risk as well as pool funds in long-term investments to earn higher returns and vice-versa.
• Risk Tolerance Level: The level of risk which an investor is willing to take, influences the investment portfolio. Investors belonging to the low-income group or older may not be ready to invest in high-risk assets.

To understand the need for investment portfolio management, it necessary to go through its goals. The below description will help you know about the necessity for investment portfolio management.

• Investment portfolio management aims at capital growth and seeks for the appreciation of the investment value or net present value.
• It strategises the gradual return on investments to create maximum value.
• Diversification of funds leads to stability and security against market uncertainties.
• It provides flexibility to switch among different investment options at any point in time to avail better opportunities.
• Regular evaluation of the well-diversified portfolio optimises the risk of loss.
• It helps the investors to make the best possible use of their funds by creating the most appropriate portfolio.
• With the practice of right asset allocation, diversification, and rebalancing the prepared portfolio, the efficiency of the investment portfolio improves significantly.