Portfolio Management and Wealth Management

Portfolio Management (PM)

A portfolio is a group of financial assets, including stocks, commodities, bonds, cash equivalents, mutual funds, exchange-traded funds, and more. Portfolio management involves making decisions about these investments, their appropriate mix, and balancing the risk against the expected performance. It includes determining the strengths, weaknesses, opportunities, and threats of the assets and selecting the optimum combination to maximize returns.

Example

Imagine an investor with a fund of Rs 1 lakh intending to create a diversified portfolio. The portfolio manager distributes the funds across various assets like equity, mutual funds, real estate, fixed deposits, bonds, and gold. The goal is to maximize returns while maintaining a lower-risk pattern.

Portfolio Management Systems

Discretionary

In a discretionary system, the fund manager makes investment decisions independently, with power of attorney from the investor to buy and sell shares. The investor has limited input in portfolio design and realignment.

Non-discretionary

Here, the investor must approve all buy-sell transactions. The portfolio manager can only execute transactions upon approval, allowing the client control over the portfolio design and realignment.

Advisory

In this model, the portfolio manager offers expert advice, leaving the decision to follow it and execute the plan to the investor. The control remains entirely with the investor.

Wealth Management

Wealth management is a broader concept than portfolio management. It encompasses managing and enhancing the overall financial situation of an individual or organization. It's used in business, trade, and by individuals to protect financial wealth and includes financial planning, accounting, tax planning, retirement planning, estate planning, and more. Portfolio management is one of the services offered under wealth management.

Example

Consider an affluent individual needing financial oversight and active management to mitigate financial obligations and plan effectively. Wealth managers provide this oversight and address the individual's wealth management needs.

Portfolio Management and Wealth Management: Key Differences

Particulars	Portfolio Management	Wealth Management
Definition	Managing a client's portfolio of assets.	Managing a client's overall financial aspects.
Focus Area	Investment options.	Financial planning.
Functions	Managing assets like stocks, bonds, mutual funds, ETFs, and commodities to yield higher returns.	Managing client's tax planning, accounting planning, retirement planning, estate planning, and more.
Designated Person	Portfolio managers.	Wealth managers.
Responsibility	Manage assets to yield high returns while lowering risk metrics.	Carrying out fiduciary responsibilities to maximize the client's benefit and manage wealth accordingly.

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