Understanding the Role and Responsibilities of a Portfolio Manager

Portfolio Manager

The modern world of investing is all about give and take, and during the course of your investigations, the terminology of a portfolio manager might have come your way. But what really is a portfolio manager? What do they do on an everyday basis? Most importantly, how do they help you keep the path to growing your wealth with sensible risk management?

Let’s put these concepts in simple language with some examples and explanations that one can internalize.

What is a Portfolio Manager?

A portfolio manager is an individual or a group that enters the domain of managing the investment portfolio for a client. They are basically your financial captain of the ship who sets out the course path for your investments through calm and stormy weather to safeguard the investments so that they finally accomplish their reason for being in financial terms.

Portfolio managers would have to deal with a myriad of clientele-sometimes individual investors, mutual funds, insurance companies, banks, pension funds, and large institutions on other occasions.

Role of Portfolio Management

Portfolio management, in the broad sense, is all about balancing risk and return. Whatever they do, they take their clients’ goals into consideration investment for making wealth, generating steady income, or just maintaining their wealth.

Portfolio management consists of a variety of areas:

• Finding the right investments (state being stocks, bonds, and so forth)
• Keeping track of these investments on a regular basis
• Making changes to these investments whenever there is a need to do so
• Keeping the portfolio aligned with your goals and risk profile

Portfolio Manager Responsibilities

Now, for a more in-depth look into portfolio manager responsibilities and activities: Daily, what do they do?

1️. Setting Investment Objectives

First, the portfolio manager understands what you aim to achieve. Do you want fast growth? Steady income? Safety first? This helps set clear, realistic investment goals. 

2️. Designing the Investment Strategy

Then, they set out to design an investment strategy with your goals in mind. If you’re young and after high growth, they’ll probably select more stocks for you. If you’re retired, they would go with bonds and safe income options. 

Here comes an important factor of asset allocation: basically deciding how much money will go into various asset classes, like equity, debt, gold, and so on.

3️. Selecting Securities

One of the most important functions of portfolio management is choosing what securities to buy or sell: stocks and bonds, as well as other assets. They go through deep research, market analysis, and company reports to select the best candidates.

4️. Continuous Monitoring

Their job, however, does not end with the selection of your investments. Portfolio managers especially keep the portfolio under continuous monitoring to see if it is on track. They follow market trends, company news, and global events in order to identify risks and opportunities.

5️. Rebalancing the Portfolio

Markets change with values changing daily. In order to keep your portfolio with the desired risk and return potentials, the manager will rebalance the portfolio, which entails buying and selling assets in an attempt to keep the original asset mix intact.

For example, in the event of stocks rising faster than the target with stocks now forming 80% of your portfolio, if the target was 70%, the manager sells a few stocks and buys some bonds to rebalance.

6️. Risk Management

Risk control is the core of a portfolio manager’s role. They manage it according to strategies such as diversification (spreading money across various assets), hedging (defence against loss), or stop-loss orders to curtail the damage in case of major reversals.

7️. Reporting and Communication

A good portfolio manager keeps you informed. Reports showing your portfolio’s performance, its current composition, its profits or losses, and the changes planned to be implemented will be made available to you regularly.

This develops a level of trust and helps you keep an even keel during volatile periods.

8️. Compliance and Ethics

Lastly, portfolio managers should adhere to the law and regulations in every situation. They should treat your money with honesty, ensure that all their practices are fair, and set aside their interests so as to avoid any conflicts.

Example to Understand Better

Let’s take an example. Rohan is an active IT professional who hires a portfolio manager to manage an investment of ₹25 lakh. The manager assists him in the following way:

Discussing Rohan’s objective: to build wealth for 15 years toward his daughter’s higher education.

• Creating a plan: 70% mutual funds, 10% stocks, 10% bonds, 10% gold.
• Selecting high-quality schemes, stocks and reliable bonds.
• Keeping watch on news, markets, and company results.
• Shuffling money between stocks and bonds should the market outlook change.
• Sending quarterly reports to Rohan explaining performance and the way forward.
• Ensuring actions are fair and stay within SEBI laws.

Rohan could rest assured that the expert had been protecting his money at all times!

Why Portfolio Managers Matter

Generally speaking, portfolio management and its skilled managers play a very important role in:

• Professional Expertise: They, by their experienced knowledge, are better than the individual investor.
•  Saving Time: Time is precious and is saved by storing thoughts of daily-priced stocks.
•  Discipline: Portfolio managers, by discipline and in a planned way, see that their investments are not made emotionally.
•  Risk Management: Diversification gives better protection from losses. 
•  Transparency: You realise where your money is and what it is doing.

This summarises the relationship between portfolio management and portfolio managers.

Conclusion

Hence, the summary: basically, portfolio managers are your investment partners and guides. They set objectives, create policies, select investments, manage risk, rebalance portfolios, and report back to their clients.

Good portfolio management can provide the needed discipline, proficiency, and peace of mind for your wealth creation adventure. Be it via PMS or mutual funds, or any other managed product, knowledge of portfolio managers will aid you in making better financial choices.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.