Types of Portfolio Management

Active Portfolio Management

The active portfolio manager aims to make better returns than the overall markets i.e. to generate Alpha. Higher returns would involve higher than normal risk in the strategies and therefore, the portfolio manager tries to downsize the risk by diversifying its investments into various asset classes, sectors and businesses.

Passive Portfolio Management

Exactly opposite to the previous type is the Passive style of portfolio management. Passive management is an investing strategy that tracks a market-weighted index or portfolio. The portfolio manager generally experiments with the Index funds which has a relatively lower turnover and reasonably decent long term returns.

Discretionary Portfolio Management

A discretionary manager is given full flexibility to make decisions for the investor. While the individual goals, risk appetite and time-frame are taken into consideration, the manager adopts the appropriate strategy which he thinks is the best suiting the investment policy statement.

Non-Discretionary Portfolio Management

The non-discretionary manager is more like an advisor than a portfolio manager himself. He advises the investor in which routes are best to take. The risks and rewards are cleared mentioned in the advisory note while the discretion to take action is totally with the investor.