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Process of Investment in investment management
- 1. Sri Ramakrishna Collegeof Arts & Science Coimbatore – 06. Topic: Investment Process M.VADIVEL Assistant Professor Department of B.Com PA Sri Ramakrishna College of Arts & Science Coimbatore.
- 3. Investment Process Step 1-Understanding the client. Step 2- Asset allocation decision. Step 3- Portfolio strategy selection. Step 4- Asset selection decision. Step 5- Evaluating portfolio performance.
- 6. Step 1- Understandingthe client. The first and the foremost step of investment process is to understand the client or the investor his/her needs, his risk taking capacity and his tax status. After getting an insight of the goals and restraints of the client, it is important to set a benchmark for the client’s portfolio management process which will help in evaluating the performance and check whether the client’s objectives are achieved.
- 11. Step 2- Assetallocation decision. This step involves decision on how to allocate the investment across different asset classes, i.e. fixed income securities, equity, real estate etc. It also involves decision of whether to invest in domestic assets or in foreign assets. The investor will make this decision after considering the macroeconomic conditions and overall market status.
- 14. Step 3- Portfoliostrategy selection Third step in the investment process is to select the proper strategy of portfolio creation. Choosing the right strategy for portfolio creation is very important as it forms the basis of selecting the assets that will be added in the portfolio management process. The strategy that conforms to the investment policies and investment objectives should be selected.
- 17. Step 4- Assetselection decision • The investor needs to select the assets to be placed in the portfolio management process in the fourth step. Within each asset class, there are different sub asset-classes. For example, in equity, which stocks should be chosen? Within the fixed income securities class, which bonds should be chosen? • Also, the investment objectives should conform to the investment policies because otherwise the main purpose of investment management process would become meaningless.
- 20. Step 5- Evaluatingportfolio performance This is the final step in the investment process which evaluates the portfolio management performance. This is an important step as it measures the performance of the investment with respect to a benchmark, in both absolute and relative terms. The investor would determine whether his objectives are being achieved or not.
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