THE CONCEPT AND TECHNIQUES OF PORTFOLIO RIVISION COMPILED BY: SHAURABH BARUAH [E-mail: shaurabhdotbaruah@gmail.

com]

DEFINITION:

A portfolio is an appropriate mix or collection of investments held by an institution or an individual. The assets in the portfolio could include stocks, bonds, options, warrants, gold certificates, real estate, futures contracts, production facilities, or any other item that is expected to retain its value. Holding a portfolio is a part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced.

PORTFOLIO REBALANCING:

Portfolio Revision is the process of selling certain issues in a portfolio and purchasing new ones to replace them. Rebalancing a portfolio is the process of periodically adjusting it to maintain the original conditions. Periodic reallocation and rebalancing are necessary. ++ Following strategies can be employed: 1. active portfolio strategy: An investment approach in which an investor uses a variety of forecasting and assumption techniques to determine which securities to purchase in order to achieve a high return. Unlike the buy and hold strategy, an adherent to an active portfolio strategy is more likely to buy and sell securities with greater frequencies as the investor seeks to move available capital into more profitable stocks. 2. Passive Portfolio Strategy: An investment strategy that is founded upon the principles of diversification. The goal is to match a particular market index's return. Opposite of Active Portfolio Strategy. 3. Constant mix strategy:

 Is one to which the manager makes adjustments to maintain the relative weighting of the asset classes within the portfolio as their prices change, Requires the purchase of securities that have performed poorly and the sale of securities that have performed the best, A constant mix strategy sells stock as it rises.

REBALANCING WITHIN THE EQUITY PORTFOLIO: The below mentioned models can be employed for rebalancing of portfolio within the equity portfolio:

1. Constant proportion: A constant proportion strategy within an equity portfolio requires maintaining the same percentage investment in each stock . May be mitigated by avoidance of odd lot transactions . Constant proportion rebalancing requires selling winners and buying losers 2. Constant beta: A constant beta portfolio requires maintaining the same portfolio beta. To increase or reduce the portfolio beta, the portfolio manager can: . Reduce or increase the amount of cash in the portfolio . Purchase stocks with higher or lower betas than the target figure . Sell high- or low-beta stocks . Buy high- or low-beta stocks

3. Change the portfolio components: Changing the portfolio components is another portfolio revision alternative. Events sometimes deviate from what the manager expects: . The manager might sell an investment turned sour . The manager might purchase a potentially undervalued replacement security 4. Indexing: Indexing is a form of portfolio management that attempts to mirror the performance of a market index. Index funds eliminate concerns about outperforming the market. The tracking error refers to the extent to which a portfolio deviates from its intended behavior.