While it may seem that investing is a one-time task, the reality is that you need to revisit your portfolio regularly. It is important to manage and review your investments to ensure they always align with your financial needs and goals.

What is Portfolio Management?

Portfolio management refers to managing the investments you have. It includes regularly reviewing your investments to ensure they align with your financial goals. You must also consider market conditions, your risk appetite and the investment’s return potential. It also involves diversifying your investments across different financial instruments, such as Unit-Linked Insurance Plans (ULIPs), mutual funds, stocks, real estate and more.

Why is Portfolio Management important?

Below are some reasons highlighting the importance of portfolio management:

• Diversification

  Your investments should be tailored to suit your financial goals, risk appetite and current financial situation. It is important to diversify based on your long-term and short-term goals. For long-term goals, where you may need more money, options like ULIPs, gold and stocks can be beneficial. However, for short-term goals you may opt for term plans, fixed deposits and more

• Risk management

  You can manage risk effectively by including different types of investments in your portfolio. You must create a balance between high-risk and low-risk investments to adjust to market fluctuations. This helps you take on the amount of risk you are comfortable with while also maximising your returns

• Minimise costs

  With proper portfolio management, you can minimise the costs associated with your investments. This helps you better understand and evaluate fees and taxes involved with different options so that you can make informed decisions

• Tax efficiency

  The role of portfolio management also helps you with tax planning. Portfolio management ensures tax efficiency by allowing you to lower your tax liabilities. It enables you to make the most of prevailing tax^* laws

Types of Portfolio Management

Below are some types of portfolio management:

• Active Portfolio Management

  Active portfolio management refers to actively monitoring your portfolio. It involves frequent buying and selling of investments to ensure your portfolio is aligned with your goals. This type of portfolio is regularly analysed and adjusted based on market fluctuations

• Passive Portfolio Management

  Passive portfolio management refers to focusing on long-term investments by following a specific benchmark of market indexes. This ensures your portfolio replicates its performance

• Discretionary and Non-Discretionary Portfolio Management

  In the case of discretionary portfolio management, your portfolio manager has complete authority to make decisions and buy or sell investments on your behalf. However, in the case of non-discretionary portfolio management, your portfolio manager only provides advice while decision making is entirely in your hands

Why is diversification important in Portfolio Management?

• Investments across global and different sectors

  Diversification allows you to invest globally and in different sectors. This enables your money to take advantage of growth opportunities in global economies. Investing in various industries helps you benefit from growth trends increasing your chances to achieve potentially higher returns

• Balance between Risks and Returns

  A well-diversified portfolio helps manage risk while providing consistent returns. If one asset loses value, others may still gain. So, by diversifying investments across different assets, you reduce overall risk. This mix of high and low-risk assets provides a balance between your risks and returns

• Long-term growth potential

  A diversified portfolio with steady returns, helps you make the most of the power of compounding. By reinvesting your earnings, you benefit from both your original investment and the returns you have already made. This enables you to build wealth consistently, even when market conditions are uncertain. Diversification of investments ensures your money grows steadily

Benefits of diversifying your financial portfolio with Life insurance plans

Below are some benefits of diversifying your financial portfolio with a life insurance plan:

• Financial security during unfortunate events

  Life insurance provides a life cover to your loved ones in case of any unfortunate event. This ensures you and your loved ones are financially secure no matter what!

• Income replacement

  Life insurance offers a steady stream of funds that can effectively replace your income. It provides you with financial support to maintain your current lifestyle and achieve your financial goals

• Guaranteed returns

  Many life insurance plans offer guaranteed^> returns, which allow you to earn returns at low risk to achieve your financial goals. Your financial goals may include travel, your children’s education, marriage, your retirement and more. These plans provide a reliable way to grow your money steadily over time

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• Tax advantages

  Life insurance provides tax^* benefits under Section 80C and Section 10(10D) of The Income Tax Act, 1961. You can claim a deduction of up to ₹ 1.5 lakh on the premiums paid under Section 80C, and the death benefit is exempt under Section 10(10D) of the Income Tax Act, 1961

• Death benefits

  Life insurance financially secures your loved ones in case of an unfortunate event. These benefits ensure that your family members have the financial resources to maintain their current lifestyle and meet their financial responsibilities

• Liquidity

  Life insurance policies often come with flexible payout options. These provide you with liquidity so you can access your funds in a way that best suits your needs

Conclusion

The significance of portfolio management is essential for your financial well-being. Effectively managing your investments is crucial for achieving your financial goals. That’s why it is important to regularly review and diversify your investments so you can adapt to changing market conditions and personal goals. It is also essential to maintain a balanced mix of instruments, such as stocks, bonds, real estate, gold, and, most importantly, life insurance for stability and security.