What is the Need for Designing an Investment Portfolio?


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NEED FOR DESIGNING AN INVESTMENT PORTFOLIO : There are large number of
savers in India. It is also surprising that the saving rate in India is as high as 32% of GDP
per annum and investment at 34% of GDP. High levels of investment could not generate
comparable rates of growth of output because of poor investment strategy, high capital
output ratios, law productivity of capital and high rates of obsolescence of capital. Thus,
the use of capital in India is wasteful and inefficient. The portfolio managers lack the
expertise and experience.
The average Indian household saves around 55% in financial form and 45% in physical
form. As per latest RBI data, savings in the financial form is held 64% in cash and bank
deposits which gives negative real returns. Around 24% of financial savings is held in the
form of Insurance, Provident Fund, Pension Funds and 5% is in Government Securities
like post office savings, NSCs, public Provident Funds, National Savings Schemes etc.
The investments in capital market instruments is around 6% of the total financial savings.
Their objectives are capital appreciation, safety marketability, liquidity and hedge against
inflation. The investors should follow proper strategy for investment management.
Therefore, portfolio management becomes desirable. Indian markets are developing and
all the basic principles and theories of portfolio management would apply in the market.
Since 1952, investois have better understood the dimension of attractiveness and why the
rational and professional management of portfolios includes more than the listing of
securities by the magnitude of their expected returns.


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