Investing in shares, capital, or mutual funds is incomplete if you do not have an investment portfolio. Assigning managers to your portfolio management is to maximise your returns and protect your funds against risk.
They will make calculated decisions about your investments and capital. Such decisions will help you to maximise your gains and invest in profitable projects.
With portfolio management, you can make decisions regarding what investments you can buy and sell. It helps you manage the securities with such an investment and yield the highest return possible with the lowest risk.
Making such decisions about investments is not just about making a strategy. Investors must follow a thorough process to implement it. So, these phases of portfolio management are what make portfolio management effective and efficient.
6 Phases of Portfolio Management
- Strategic Planning
For your portfolio management, the first thing you need to do is make a strategic plan. Defining your objectives and plans will eventually guide the portfolio manager to prioritise projects that will bring in the most value.
Apart from this, it is equally important to have traceability across the organisation. Each step of the project must have traceable outcomes. It helps to effectively communicate the strategy to the stakeholders and other executives who are involved in strategy planning.
- Due Diligence
Among the phases of portfolio management, after making a plan, you have to analyse what you want to invest in. This requires having considerable information in your hands to allow you to make smart investment decisions. Such a process is due diligence.
Through due diligence, you can assess the company’s numbers and the investment’s potential in terms of growth. Due diligence reduces risk. It will ensure that you are aware of all the information, including the risks.
Making a due diligence checklist is the best way to carry out analysis. This checklist includes areas that need analysis, like ownership, organisation, assets, financial ratios, future growth potential, management, etc.
- Risk Assessment
This step in the portfolio management phase helps you identify the risks associated with the assets.. It helps you to choose the best asset mix that will help to minimise loss and reduce risk in your portfolio.
Experts can analyse the risks in multiple ways- through cost-benefit analysis, statistical modelling, sensitivity analysis, etc., they will list the risks in terms of priority from the ones that pose the highest risk to the ones that pose the lowest risk..
Having analysed the risks in such phases of portfolio management, project managers and portfolio management teams must develop responses to such threats. Such responses help to mitigate the hazards and the results of expected performance. Using PPM tools and project portfolio software, your portfolio management team can manage and control such risks.
- Portfolio Strategy
Having assessed the risks and analysed all the assets, you have selected a certain asset mix. Now, it is time to formulate a portfolio strategy. There are multiple strategies that can accomplish the goal of investment portfolio management. There are a few strategies that can improve profitability. Let’s look at the steps in portfolio management strategy.
- Asset Allocation
This strategy, in the phases of portfolio management, involves investing in different types of assets throughout the portfolio investment process. Invest in assets, whether volatile or non-volatile, based on the investor’s investment goals and risk tolerance. It might eventually result in significant returns with little risk.
It is very important for portfolio managers to diversify their portfolios . It helps to spread the risks and generate profits. Financial markets are volatile. There are risks that sometimes even experts cannot anticipate. So, when you have a diverse portfolio of assets, making a profit on one can easily offset the loss on another.
Talking about volatile markets, market volatility might cause an investment plan to diversify from its target allocation. Keeping in mind the market risks and how they change, when you rebalance your portfolio, it might result in higher returns with fewer risks. The common way to do this is to include buying and selling assets as needed or increasing portfolio assessment.
With the rebalancing of the assets and the portfolio, you can move on to the next step of the portfolio selection process. Investments also mean paying taxes on such investments. You need a plan to ensure that you do not pay extra taxes.
- Tax Reduction
The last one in all these phases of portfolio management’s strategy is to reduce your taxes. You need to come up with plans to invest in programs and shares that maximise your profitability. You can do all these things without paying excessive taxes on your investment returns.
- Portfolio Implementation
The concept of the portfolio process is only complete with the conclusion of the portfolio implementation. Whether you invest in mutual funds or directly in equities, the primary focus of this stage is to focus on execution by paying attention to factors like timing of execution, transaction costs, tax effectiveness, etc.
In the phases of portfolio management, the success of portfolio implementation is heavily reliant on portfolio strategy. A successful strategy for your portfolio means assessing your current product portfolio, identifying potential opportunities, aligning with organisational goals, prioritising products, and allocating resources accordingly.
Last but not least, the investors will regularly monitor them to analyse their success. Let’s see the monitoring process in more detail.
Monitor and Rebalancing
Portfolio management is not a one-time task. The management needs to constantly be in touch with the client. The portfolio manager must closely monitor the risk exposures of the portfolio.
Not just that, they must also compare them with a strategic allocation plan. If there is a need, they must rearrange and restructure the portfolio as per the needs of the client so they can maximise their profits. Transaction costs and taxes are part of this rebalancing of the portfolio.
With all such steps, you think that it is the end. However, it is not. Portfolio management is an ongoing process that needs upgrading and monitoring very frequently.
The last thing amongst the phases of portfolio management that portfolio managers must do is to assess the performance of their portfolio. Let’s take a look at the “performance” of your portfolio and why it is important.
- Performance Evaluation
Performance evaluation in the phases of portfolio management is a crucial step that assesses your portfolio’s effectiveness over a given period of time. This process involves weighing the portfolio’s pros and cons, risk and return aspects, and alignment with stated investment objectives.
It includes quantitative measurements of actual returns and the risk incurred during the investment period. Then you compare them against predefined benchmarks to gauge relative performance. It basically functions as useful feedback to help improve your portfolio’s performance over the phases of portfolio management.
What it Does
It calls for periodic reviews of strategic planning, objectives, and decision-making. criteria, along with a thorough analysis of project portfolio performance and risks. Based on this analysis, adjustments are possible in areas like Capacity planning and budget management.
The concept of adaptability is paramount in this context. An adaptive approach to portfolio management ensures your organisation can respond to evolving strategies without sacrificing performance, making it an essential element for efficient Strategic Portfolio Management.
FAQs: Phases of Portfolio Management: Start Your Solar Investment Journey Like a Pro
What is portfolio management process?
Portfolio management is a service that allows investors to maximise their earnings within a given time period. It also allocates investments in sectors where there is a chance of profitability and low chances of market risks.
What are portfolio management services?
PMS, or Portfolio management Services, is a financial service where you can seek the expertise of skilled portfolio managers and financial advisers to make your equity portfolio with the assistance of a research team. It guides you on how to grow your wealth.
Are there any tax implications for investing in renewable energy projects?
Project developers are exempt from paying taxes. Also, solar power-generating companies get a 100% tax waiver on their profits for the first 10 years.
How to manage risk and diversify my renewable energy investments?
Balance out high-risk and high-reward investments with low-risk and low-reward ones. Combine different types of renewable energy investments, investing in projects or companies located in different regions.
How to create a diverse renewable energy portfolio?
Invest in multiple renewable energy sources like solar, wind, and hydropower energy projects. Diversifying your investments in this manner reduces your reliance on a single source.
Market is subject to change, and your investments might see profit or loss depending on that. As an investor, you must always be prepared for the volatility of the market. But in any case, what will not change is the process and phases of portfolio management. For smart and profitable investment choices in renewable energy, choose Sustvest to gain maximum profit on your investment.
Founder of Sustvest
Hardik completed his B.Tech from BITS Pilani. Keeping the current global scenario, the growth of renewable energy in mind, and people looking for investment opportunities in mind he founded SustVest ( formerly, Solar Grid X ) in 2018. This venture led him to achieve the ‘Emerging Fintech Talent of the Year in MENA region ‘ in October 2019.