Importance of Portfolio Management

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Importance of Portfolio Management

Importance of Portfolio Management
  • 4th Jul 2022 |
  • 2,491

Keywords: importance of portfolio management, importance of portfolio analysis, significance of portfolio management

Risk and return are the most critical aspects of financial planning, and individual investors prefer to minimize the risk to the maximum extent that is possible. Portfolio refers to the collection of investment instruments like shares, funds, bonds, etc. The art of selecting the right investment tool in the right proportion so that it can generate optimum returns is what makes up the portfolio investment. Investing money in a huge number of assets with different attributes helps to diversify the risk of a portfolio, thus increasing the reasonable assurance of the returns. The best portfolio management runs on the principle of minimum risk and maximum return for the invested amount in the given time frame. This is where the importance of portfolio management comes in. To elucidate, let’s boil down the important reasons for managing the portfolio:

Importance of Portfolio Management

Significance of Portfolio Management

Better Investment Planning

A look at your past investments will help you frame a better investment strategy in the near future. You can also plan holistically while taking into consideration the age factor, propensity of risk, income, and budget. Finally, making an informed and sensible decision will help in reducing the chances of loss.

Minimizes the Risk

Portfolio management helps in reducing the risk of the investment strategy to the extent that cannot be ignored. Therefore, it increases the chances of making profits.

Though risk is minimized, portfolio managers also consider uncertainties such critical illness, permanent disability, or even death. To assure the risk factor, it is always advisable to invest in risk assessment financial tools like term insurance, insurance riders etc.

Customizable Solution

With portfolio management, you get the opportunity to plan and account for the specific goals that you have in mind and customize your strategies, expected returns, and risks according to your preference.

Tax Planning

Taxes usually drain your income; thus, people try to avoid any excess tax payments. However, a sound and well-managed investment plan can go a long way.

Reduces Cost and Saves Time

Some investors may not have a sound financial background, while some may find it challenging to manage their finances, and yet others find it hard to track the factors impacting their investments. Therefore, trying to manage personal finances and not doing it the right way can be a costly expense. This is why availing portfolio management services come with a cost and go a long way in protecting an individual’s finances.

Objectives of Portfolio Management

Now, since we know about the importance of portfolio analysis, let’s move forward to see the detail regarding the significant objectives of portfolio investment and its objectives:

Capital Appreciation

The primary objective behind managing the portfolio is to enjoy capital appreciation. Therefore, the principal amount that is invested should grow into a corpus at a higher rate than inflation. Furthermore, it should also minimize the risks of investment.

Frequency of Income Generation

Some investors prefer regular income that can be enjoyed by way of dividends, while others may prefer receiving a larger maturity corpus. A portfolio manager considers both factors while building a portfolio for the investor.

Tax Planning

Earning a handsome return but not being able to use or maintain it due to poor tax planning is disappointing. Different assets are taxed differently. Thus, it is crucial for the portfolio manager to consider the tax policies during asset allocation to help investors plan their taxes well in advance.


Well-planned portfolio management helps to give an investor immediate access to their funds for an emergency or an expense. It is advisable to invest in a well-balanced mix of listed and unlisted shares because the former has more traceability than the latter.

Safety of Investments

Another crucial objective is that the portfolios constructed should match the investor’s risk potential. Therefore, funds should be allocated in a way that minimize the risk and maximize the returns.


The only way to enjoy maximum returns is by minimizing risk, which can be done through diversification. Zero risk is just an imaginary situation.

Portfolio management enables you to achieve your long term financial goals in the most effective manner under a manager’s expertise. With the portfolio manager’s guidance, you can easily keep your finances in check, create wealth, and enjoy financial security.

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