Question.3224 - INVESTMENT PORTFOLIO REVIEW
Answer Below:
Portfolio management refers to the process of determining the component and structure of an investment portfolio based on series of criteria specific to a set of individual specifications. The goal of portfolio management is to assure that an investment portfolio’s individual components be so allocated that it allows the totality of it is balanced and structured in a manner so as to meet the investors goal, preferences, targets and risk tolerance. In the given case study, 50 % of the fund has been kept in the money market savings account. Money market is the forum that pays a higher amount of interest. Even the fund is capable of six withdrawals in a month. The best part of the money market is that the market is highly liquid. The investment corpus comprises of 50% of investment in the money market. This proves to be a cautious investment choice, as money market is risk free or is associated with low risk. The rest 50% has been divided into 5% in equity and balance 45% in fixed income. 45% in fixed income yields fixed income in the form of interest and dividends that ensures safety of the fund whereas the rest 5% investment in equity ensures higher yield. Thus, the fund’s overall performance in terms of return is achieved despite the amount of risk was low. Again the investment avenue of Treasury note ensures liquidity to the fund. The interest rate risk of the fund was minimized by this process as the fund in the Treasury note is kept for a very small period. The fund has been wisely invested with the upper bound of interest rate being 12.73% and lower bound being 0.05%. Overall the fund seems to be very well diversified keeping in minds the important factors such as maturity of the investment, interest rate, liquidity of the investment & risk associated. The most advantage of inflation protected security is the protection of spending power against inflation. This makes IPS related funds a better investment strategy and tool for many investors than all other fixed income investments, because inflation is a constant thief of spending power. Even the IPS is fully tax protected. Thus in order to make the portfolio more diversified and secured, the ratio can be a bit changed. Instead of charging 50% of the fund to the savings account, the ratio can be made to about 40-45%. The balance can be allocated to the purchase of treasury bills. Two primary reasons because of which I would like to make the changes and shift more to treasury bonds: ? Protection against the destructive hyper inflation. ? There is no equivalent to the treasury bills. Private and public companies do not leave themselves to sky-high interest and principal payments when hyper inflationary pressure draws up. So they don’t issue inflation-protected securities. This makes treasury bills to be the only secured source in the game. References: Sushant, “Portfolio Management Tools” published under Techniques, Tools and Strategies Extracted from: http://www.portfoliomanagement.in/portfolio-management-tools.html “Project portfolio management”, Tutorials Point, Extracted from: http://www.tutorialspoint.com/management_concepts/project_portfolio_management.htm A. Green, May 10, 2010, Issue 1256, “TIPS: The Indispensable Investment” Extracted from: http://www.investmentu.com/2010/May/treasury-inflation-protected-securities-tips.htmlMore Articles From Finance
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