Portfolio Strategy: Concentration Vs Diversification Which Is Better?

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Portfolio Strategy: Concentration Vs Diversification Which Is Better?

Portfolio construction is a process of selecting securities optimally by taking minimum risk to achieve maximum returns. The portfolio consists of various securities such as bonds, stocks, and money market instruments. There is no full-proof assurance that the concentrated portfolios will outperform every time. If the factors affecting portfolio performance work in favour and the concentrated stocks or sectors are sound, the chances of the portfolio outperforming the market index are higher.

product portfolio means

The key to an insulated investment for a risk-averse investor is to look for different assets that have historically shown other performance trends . The tax liability of a PMS investor would remain the same as if the investor is accessing the capital market directly. The Portfolio Manager ideally provides audited statement of accounts at the end of the financial year to aid the investor in assessing his/ her tax liabilities.

What Is Diversification Strategy?

Therefore, there is no ‘one evergreen strategy that fits the bill’. Because brands are generally not successful when they experiment and work with something, they are new to. Surprisingly, a leading Indian confectionery & biscuit company in Parle also came up with a new product category with the launch of its ‘Parle Suraksha’ hand sanitizer. For instance, Aashirvaad is now into diverse categories of offerings such as salt, ghee, spices, ready to eat meals, etc. Over the years, the different variants have been welcomed and loved in terms of their brand campaigns as well as their acceptability. It is undoubtedly one of the most popular contraception brands worldwide.

product portfolio means

As marketeers of the future, it is essential that you are informed about a product line & its offerings. How they are positioned by brands to gain a stronghold against their rivals ? Why do a lot of brands keep adding new product categories on their shelves. As per the GE Matrix, all 5 business units fall in the category of Invest and grow. The company should be focussing on all these businesses in the coming years as per our conclusion. Reliance Product portfolio includes its services in the Petroleum and Natural Gas sector, Petrochemicals, Textiles, Retail, Telecommunication, Entertainment, Financial Services and software.

If you look at the graphic above, there is a clear positive relationship between risk and return. Higher the risk taken higher is the return expectation and lower the risk taken; the lower is the return expectation. When you are selecting an investment portfolio for yourself, you always try to ensure that your portfolio lies along this frontier.

However, if the interest rates go up, the price of these bonds will go down. But, what if the auto sector’s performance slopes downward in the next two years? That chance of adverse outcomes from having a concentrated portfolio is termed concentration risk. Assume that you have evaluated the auto sector and realised some of the stocks from that sector performed well over the last ten years and generated higher returns than the benchmark index.

Portfolio Management Service provider gives the client a customised service. The company takes care of all the administrative aspects of the client’s portfolio with a periodic reporting on the overall status of the portfolio and performance. Thereby, the bifurcation is done across researched product portfolio means stocks in the markets. This is the method preferred by those who believe in having liquidity in investments so that one can get the money back when needed. BCG Matrix of Google Google’s mission is to organise the world’s information and make it universally accessible and useful.

A portfolio can also include some non-tradable securities, arts, and real estate. As the name suggests, such a type of portfolio commands you to invest in an amalgamation of asset types with varying fundamentals to earn the best of both growth and dividend-yielding investments. A hybrid portfolio is a balance of high-yield equity returns and fixed income instruments such as debt funds and bonds. A well-balanced portfolio should protect you against market volatility. A well-balanced portfolio should include smallcap stocks, midcap stocks, bluechip stocks, government bonds, debt funds, mutual funds, gold, etc.

Example of Portfolio Management

In such situations, portfolio management plays a key role as it can not only help enhance returns but also put the right financial strategies into practice. While there are several types of portfolios, investors must be prudent in selecting the right assets to achieve their investment objectives. Take time to research every asset type’s fundamentals and figure out the most suitable combination of investments to hold in your portfolio to generate maximum returns. Portfolio definition, it is a collection of a wide range of assets that are owned by investors.

A good portfolio manager will help customers make informed investment choices taking aspects such as age, budget, and goals into account and recommend the kind of risks they can take when investing. Over 300 asset managers provide discretionary portfolio management services in India, collectively managing a whopping AUM of Rs 13.28 lakh crores. An investor may become overwhelmed by the range of choices offered.

product portfolio means

There might be various sizes, flavours, versions of the same product on offer. Product Line length refers to the number of products/brands that come under a single product category/line. A product line can be described as a set of products that are meant for similar customer groups, provide similar value, and are sold through the same channels for a particular brand. Simply put, it refers to the various distinct product categories that a brand offers.

Product – The result of a manufacturing or natural process which is offered for sale to the general public, usually by a retailer. Process in the UK, where managers and employees representatives, usually from unions, meet to discuss matters relating to the employees working conditions, etc. The terms used in business such as Product Portfolio,Product,Production Sharing,Professional Liability,Profit,profit margin etc.

Recent developments in the PMS space in India

Just like Patanjali’s SWOT Analysis, here I capture the essence of what makes Amul a really interesting and a successful brand. Which means that at times certain businesses are run or certain products are maintained because they help in accentuating the other business or product. And therefore, killing this product or thinking of the other product to be the strong product is misleading. One of those limitations is that the potential synergy and the undercurrents between two business units of the similar organisations are not considered. Herein, the products are not going to reap the desired profits and are likely to fail. As you could see from the GE matrix given in the image above, you would identify and label each product and the business unit which you are evaluating.

For example, Kellogg’s Cornflakes offers so many different flavours, Maruti Suzuki sells various models in sedan category & Vaseline is sold in different stock keeping units . They might not be utilizing total capacity and cannot make most of evolving customer demands and segments. Despite, those small nuances, the GE matrix is still one of the best management tools for the marketers.

  • In other words, you shouldn’t sell your stocks just because they went down temporarily.
  • They need to be tweaked and rebalanced from time to time in order to maximize returns.
  • Therefore, there is no ‘one evergreen strategy that fits the bill’.
  • If to scale it, these run from lakhs to crores as per the market and individual experience.

Investors create their portfolios after analyzing their risk and return characteristics and requirements. It is pretty easy to boil down on a choice of assets in a defensive portfolio. Think about the products that are an absolute must for you throughout the day and invest in the companies which make them. But first, let’s explore the different portfolio types available to an investor. Multiple factors such as your financial goals, risk appetite, investment horizon needs to be considered before choosing the right portfolio type for yourself.

Pros and Cons of Portfolio Diversification

As the name suggests, the business units that fall in this category are products which will be giving higher returns in the near future. SEBI has also mandated the portfolio managers to utilize the services of certified distributors who have AMFI registration numbers or have cleared the NISM Services V-A exam. Investments in securities market are subject to market risk, read all the related documents carefully before investing.

Most of the money in a defensive portfolio is usually invested in fixed-income securities. If you don’t like taking risks, you can put together a defensive portfolio. A well-balanced portfolio should be designed https://1investing.in/ as per your risk profile. To create a well-balanced portfolio, you should decide your asset allocation as per your risk profile. The well-balanced portfolio definition can vary from investor to investor.

In this segment, an investor can invest in stocks of some small-cap companies. On the contrary, a defensive portfolio doesn’t comprise of stocks with a high beta value. These stocks are pretty safe to invest in as they involve minimal risk. Neither do they give extravagant returns in upswings nor excessively crash during the business cycle’s lows. Aggressive investors don’t always go for household names in stocks or financial assets. They often prefer companies that are still in their initial growth stages and have a unique value proposition that can garner spectacular returns for the commensurate risks.

You may opt for a highly concentrated portfolio if you have a higher risk tolerance level and higher return expectations. On the contrary, if you are ready to settle with lower returns for lower risk, you may opt for a diversified portfolio. Apart from cash, the client can also hand over an existing portfolio of stocks, bonds or mutual funds to a Portfolio Manager that could be revamped to suit his profile. However the Portfolio Manager may at his own sole discretion sell the said existing securities in favour of fresh investments. It refers to how your assets are divided across different types of investments.

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