WHAT IS PORTFOLIO REVISION?

The art of changing the mix of securities in a portfolio is called as portfolio

revision.
The process of addition of more assets in an existing portfolio or changing
the ratio of funds invested is called as portfolio revision.
The sale and purchase of assets in an existing portfolio over a certain
period of time to maximize returns and minimize risk is called as Portfolio
revision.
Portfolio Revision is the process of changing the composition of securities
or bonds in the portfolio depending on the performance, expectations & the
strategy. If the policy of investor shifts from earnings to capital appreciation
the stocks should be revised accordingly. An investor can sell these shares
if the price of the shares considered risk, quality & tax concessions. If any
stock offers a competitive edge over the present stock, investment should
be shifted to that stock.

NEED FOR PORTFOLIO REVISION

Need for Portfolio Revision The need for portfolio revision might simply
arise because the market witnessed some significant changes since the
creation of the portfolio. Further, the need for portfolio revision may arise
because of some investor-related factors such as
Availability of additional wealth,
Change in the risk attitude and the utility function of the investor,
Change in the investment goals of the investors.
The need to liquidate a part of the portfolio to provide funds for
some alternative uses.
The other valid reasons for portfolio revision such as short-term
price fluctuations in the market do also exist. There are, thus,
numerous factors, which may be broadly called market related and
investor-related, which spell need for portfolio revision.
An individual at certain point of time might feel the need to invest
more. The need for portfolio revision arises when an individual has
some additional money to invest.
Change in investment goal also gives rise to revision in portfolio.
Depending on the cash flow, an individual can modify his financial
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goal, eventually giving rise to changes in the portfolio i.e. portfolio

revision.
Financial market is subject to risks and uncertainty. An individual
might sell off some of his assets owing to fluctuations in the
financial Market.

OBJECTIVE

Portfolio evaluating refers to the evaluation of the performance of the

portfolio. It is essentially the process of comparing the return earned on a
portfolio with the return earned on one or more other portfolio or on a
benchmark portfolio. Portfolio evaluation essentially comprises of two
function

performance

measurement

and

performance

evaluation.

Performance measurement in accounting function which measures the return

earned on a portfolio during the holding period or investment period.
Performance evaluations, on the other hand, address such issues as whether
the performance was superior or inferior whether the performance was due
to skill or luck etc.The objective of portfolio management is maximizing
return and minimizing risk. It requires a continuous research, appraisal and
evaluation of capital market as well as that of portfolio. Portfolio evaluation
involves the process of examining whether the objective of portfolio
management has been achieved or not .The portfolio evaluation is the
appraisal of performance of the portfolio.

Portfolio evaluation is the process of measuring and comparing the returns earned
on a portfolio with the returns for a benchmark portfolio. In other words the
portfolio evaluation identifies whether the performance of a portfolio has been
superior or inferior to other portfolios. It may be noted that the returned of the
portfolio included both the capital gain and the revenue income.
Evaluation a portfolio performance is not restricted to calculation of average
returns of the portfolio there are several factor that should be incorporated in the
evaluation procedure would give a true ranking of the performance of different
portfolios.
Some of the factors that need attention in the evaluation procedure are:
Risk-Return Trade Off: The underlying philosophy of the entire investment
analysis is the risk-return trade off. Risk and Return are two sides of the
same coin. The performance evaluation should be based on both and not on
either of them .Risk without return level and return without risk level are
impossible to be interpreted .No doubt, investors are risk-averse .But it does
not means that they are not ready to assume risk. They are ready to take risk
provided the return is commensurate. So, in the portfolio performance
evaluation, risk-return trade-off be taken care of.
Appropriate Market Index: Portfolio performance is evaluated in relative
terms. The performance of one portfolio is benchmarked either against some
other portfolio or against some carefully selected market index. There are
number of benchmarks available and the selection must be based on careful
analysis.

 Common investment time horizon: Investment period horizon of the

portfolio being evaluated and the time horizon of the benchmark must be
same. Suppose, a mutual fund scheme announces that it has earned the
highest return. Before being accepted, it must be found whether the highest
return has been earned during current year or during last 3 years or during
last 5 years, etc.
Objectives or constraints of portfolio: Another important consideration in
evaluation of portfolio performance is the objectives for which the portfolio
has been created or were there any constraints on the performance of the
portfolio. For example, if the portfolio manger is not allowed to take
arbitrage trading then the profit from day trading and short-term fluctuations
need not be expected from the portfolio.Similarly,a bond portfolio or fixed
income securities portfolio should be evaluated with this constraint in mind.
The ability of the investor depends upon the absorption of latest developments
which occurred in the market. The ability of expectation if any, we must able to
cope up with the wind immediately .investment analysis continuously monitor and
evaluate the result of the portfolio performance .The expect portfolio constructer
shall show superior performance over the market and other factors. The
performance also depends upon the timing of investments and superior investment
analysis capabilities for selection. The evolution of portfolio always followed by
revision and reconstruction. The investor will have to assess the extent to which the
objectives are achieved for evaluation of portfolio, the investor shall keep in mind
the secured average returns, average or below average as compared to the market
sistution.Slection of proper securities is the first requirement.

PORTFOLIO REVISION STRATEGIES

There are two types of Portfolio Revision Strategies.

1. Active Revision Strategy
Active Revision Strategy involves frequent changes in an existing portfolio
over a certain period of time for maximum returns and minimum risks.
Active Revision Strategy helps a portfolio manager to sell and purchase
securities on a regular basis for portfolio revision.
2. Passive Revision Strategy
Passive Revision Strategy involves rare changes in portfolio only under
certain predetermined rules. These predefined rules are known as formula
plans.
According to passive revision strategy a portfolio manager can bring
changes in the portfolio as per the formula plans only.

CONSTRAINTS IN PORTFOLIO REVISION

Some common constraints in portfolio revision are as follows:

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Transaction cost.
Taxes.
Statutory Stipulation.
No Single Formula.

Transaction cost
Buying and selling of securities involves transaction cost such as
commission and brokerage frequent buying and selling of securities for
portfolio revision may be push up transaction cost there by reducing the gain
from portfolio revision hence the transaction cost involved in portfolio
revision may act as a constraint to timely revision of portfolio.
Taxes
Taxes are payable on the capital gain arising from sale of securities. Usually
long term capitals gained are taxed at a lower rate than short term capital
gain. To qualify a long term capital gain,a security must be held by an
investor for a period 12 months before the sale .Frequent sale of securities in
the course of portfolio revision or a adjustment will result in short term
capital gain which would be taxed at a higher rate compared to the long term
capital gain. The higher tax on short term capital gain may act as constraints
to frequent portfolio revision
Statutory Stipulation
The largest portfolios in every country are managed by investment
companies and mutual fund. This institutional are normally governed by
statutory stipulation regarding their investment activity .These stipulation
often act as constraints in timely portfolio revision.

 NO Single Formula
Portfolio revision is difficult and time consuming exercise .The
methodology to follow for portfolio revision is also not clearly established.
Different approach may be adopted buying stock when price are low and
selling them with higher .This techniques are referred to as formal plans.

TYPES OF RISK IN PORTFOLIO EVALUATION

1. Systematic risk.
2. Unsystematic risk.
The meaning of systematic and unsystematic risk in finance:
1. Systematic risk is uncontrollable by an organization and macro in nature.
2. Unsystematic risk is controllable by an organization and micro in nature
A. SYSTEMATIC RISK

Systematic risk is due to the influence of external factors on an organization. Such

factors are normally uncontrollable from an organization's point of view.

It is a macro in nature as it affects a large number of organizations operating under

a similar stream or same domain. It cannot be planned by the organization
The types of systematic risk are depicted and listed below
1. Interest rate risk,
2. Market risk and
3. Purchasing power or inflationary risk.
Now let's discuss each risk classified under this group
1. Interest rate risk: Interest-rate risk arises due to variability in the interest
rates from time to time. It particularly affects debt securities as they carry
the fixed rate of interest.

The types of interest-rate risk are depicted and listed below

Price risk: Price risk arises due to the possibility that the price of the shares,
commodity, investment, etc. may decline or fall in the future.

Reinvestment rate risk: Reinvestment rate risk results from fact that the
interest or dividend earned from an investment can't be reinvested with the
same rate of return as it was acquiring earlier

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2. Market risk: Market risk is associated with consistent fluctuations seen in

the trading price of any particular shares or securities. That is, it arises due to
rise or fall in the trading price of listed shares or securities in the stock
market.
The types of market risk are depicted and listed below
Absolute risk:Absolute risk is without any content. For e.g., if a coin
is tossed, there is fifty percentage chance of getting a head and viceversa.
Relative risk: Relative risk is the assessment or evaluation of risk at
different levels of business functions. For e.g. a relative-risk from a
foreign exchange fluctuation may be higher if the maximum sales
accounted by an organization are of export sales.
Directional risk: Directional risks are those risks where the loss arises
from an exposure to the particular assets of a market. For e.g. an
investor holding some shares experience a loss when the market price
of those shares falls down.
Non-directional risk: Non-Directional risk arises where the method of
trading is not consistently followed by the trader. For e.g. the dealer
will buy and sell the share simultaneously to mitigate the risk
Basis risk: Basis risk is due to the possibility of loss arising from
imperfectly matched risks. For e.g. the risks which are in offsetting
positions in two related but non-identical markets
Volatility risk: Volatility risk is of a change in the price of securities as
a result of changes in the volatility of a risk-factor. For e.g. it applies
to the portfolios of derivative instruments, where the volatility of its
underlying is a major influence of prices
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3. Purchasing power or inflationary risk: Purchasing power risk is also known

as inflation risk. It is so, since it emanates (originates) from the fact that it
affects a purchasing power adversely. It is not desirable to invest in securities
during an inflationary period.
The types of power or inflationary risk are depicted and listed below.
Demand inflation risk: Demand inflation risk arises due to increase in
price, which result from an excess of demand over supply. It occurs
when supply fails to cope with the demand and hence cannot expand
anymore. In other words, demand inflation occurs when production
factors are under maximum utilization
Cost inflation risk: Cost inflation risk arises due to sustained increase
in the prices of goods and services. It is actually caused by higher
production cost. A high cost of production inflates the final price of
finished goods consumed by people.

B. UNSYSTEMATIC RISK
Unsystematic risk is due to the influence of internal factors prevailing within an
organization. Such factors are normally controllable from an organization's point of
view.It is a micro in nature as it affects only a particular organization. It can be
planned, so that necessary actions can be taken by the organization to mitigate
(reduce the effect of) the risk.

The types of unsystematic risk are depicted and listed below

1. Business or liquidity risk,
2. Financial or credit risk and
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3. Operational risk
1. Business or liquidity risk: Business risk is also known as liquidity risk. It is
so, since it emanates (originates) from the sale and purchase of securities
affected by business cycles, technological changes, etc.
2. Financial or credit risk : Financial risk is also known as credit risk. It arises
due to change in the capital structure of the organization. The capital
structure mainly comprises of three ways by which funds are sourced for the
projects. These are as follows:
a) Owned funds. For e.g. share capital.
b) Borrowed funds. For e.g. loan funds.
c) Retained earnings. For e.g. reserve and surplus.
3. Operational risk: Operational risks are the business process risks failing due
to human errors. This risk will change from industry to industry. It occurs
due to breakdowns in the internal procedures, people, policies and systems.
The types of operational risk are depicted and listed below.
Model risk: Model risk is involved in using various models to value
financial securities. It is due to probability of loss resulting from the
weaknesses in the financial-model used in assessing and managing a risk
People risk: People risk arises when people do not follow the organizations
procedures, practices and/or rules. That is, they deviate from their expected
behavior
Legal risk : Legal risk arises when parties are not lawfully competent to
enter an agreement among themselves. Furthermore, this relates to the
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regulatory-risk, where a transaction could conflict with a government policy

or particular legislation (law) might be amended in the future with
retrospective effect
Political risk: Political risk occurs due to changes in government policies.
Such changes may have an unfavorable impact on an investor. It is
especially prevalent in the third-world countries

TREYNOR MEASURE

Jack L. Treynor was the first to provide investors with a composite measure of
portfolio performance that also included risk. Treynor's objective was to find a
performance measure that could apply to all investors, regardless of their personal
risk preferences. He suggested that there were really two components of risk: the
risk produced by fluctuations in the market and the risk arising from the
fluctuations

of

individual

securities.

Treynor introduced the concept of the security market line, which defines the
relationship between portfolio returns and market rates of returns, whereby the
slope of the line measures the relative volatility between the portfolio and the
market (as represented by beta). The beta coefficient is simply the volatility
measure of a stock portfolio to the market itself. The greater the line's slope, the
better

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the

risk-return

tradeoff.

The Treynor measure, also known as the reward to volatility ratio, can be easily
defined as:
(Portfolio Return Risk-Free Rate) / Beta
The numerator identifies the risk premium and the denominator corresponds with
the risk of the portfolio. The resulting value represents the portfolio's return per
unit risk.

JENSEN'S DIFFERENTIAL RETURN MEASURE

A risk-adjusted performance measure that represents the average return on a
portfolio over and above that predicted by the capital asset pricing model (CAPM),
given the portfolio's beta and the average market return. This is the portfolio's
alpha. In fact, the concept is sometimes referred to as "Jensen's alpha.

The basic idea is that to analyze the performance of an investment manager you
must look not only at the overall return of a portfolio, but also at the risk of that
portfolio. For example, if there are two mutual funds that both have a 12% return, a
rational investor will want the fund that is less risky. Jensen's measure is one of the
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ways to help determine if a portfolio is earning the proper return for its level of
risk. If the value is positive, then the portfolio is earning excess returns. In other
words, a positive value for Jensen's alpha means a fund manager has "beat the
market" with his or her stock picking skills.
In finance, Jensen alpha is used to determine the abnormal return of security or
portfolio of security or portfolio of securities over the theoretical expected return.
The security could be any asset such as stock, bond or derivatives. The theoretical
return is predicated by a market model; most commonly the Capital Asset Pricing
Model (CAPM) model .The market model uses statistical methods to predict the
appropriate risk-adjusted return of an asset. The CAPM for instance uses beta as a
multiplier.
Jensens alpha was first used as a measures in the evaluation of mutual fund
managers by Michael Jensen in 1968.The CAPM return is supposed to be risk
adjusted, which means it takes account of the relatives riskiness of the asset. After
all riskier assets will have higher expected returns than less risky asset. If an assets
return is even higher than the risk adjusted return, that asset is said to have
positive alpha or abnormal returns. Investors are constantly seeking investment
that have higher alpha.

In the context of CAPM calculating alpha requires the following inputs.

(a) The realized return(on the portfolio ),
(b) The market return
(c) The risk- free rate of return
(d) The beta of the portfolio.
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Jensen alpha=portfolio return-[Risk Free Rate + Portfolio Beta *(Market ReturnRisk Free Rate)]
Since Eugene Fame, many academics believe financial markets are too efficient to
allow for repeatedly earning positive Alpha, unless by chance .To the contrary,
empirical studies of mutual fund spearheaded by Russ Wermers usually confirm
mangers stock
Use in quantitative finance
Jensens alpha is a statistic that is commonly used in empirical finance to assess the
margin return associated with unit exposure to a given strategy.Generalizing the
above definition to the multifactor setting Jensens alpha is a measure of the
marginal return associated with an additional strategy that is not explained by
existing factors.
We obtain the CAPM alpha if we consider excess market return as the only factor.
If we add in the Fama-French factors, we obtain the 3 factor alpha and so on. If
Jensens alpha is alpha is significant band positive, then the strategy being
considered has a history of generating returns on top of what would be expected
based on other factor alone .
For example in the 3 factor case we may regress momentum factor returns on 3
factor return to find that momentum generates a significant premium on top of size,
value and market returns.

PORTFOLIO ASSESSMENT

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Portfolio assessment is the systematic, longitudinal collection of student work

created in response to specific know instructional objective and evaluated in
relation to t he same criteria .Assessment is done by measuring the individual
works as well as the portfolio as a whole against specified criteria which match the
objective toward a specific purpose .
Portfolio creation is the responsibility of the learner with teacher guidance and
support and often with the involvement of peers and parents. The audience assesses
the portfolio.
Portfolios have generated a good deal of interest in recent years, with teachers
taking the lead in exploring ways to use them. Teachers have integrated portfolio
into instruction an assessment, gained administrative support and answer their own
as well as student administrator and parent question about portfolio assessment .
Concerns are often focused on reliability, validity, process, evaluation, and time
.These concerns apply equally to other assessment instruments. There is no
assessment instrument that meet every teachers purpose perfectly is entirely valid
and reliable takes no time to prepare administer or grade and meet each student
learning style.

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ADVANTAGE OF PORTFOLIO ASSESSMENT

Promoting student self-evaluation refection and critical thinking.

Measuring performance based on genuine sample of student work.

Providing flexibility in measuring how student accomplish their learning

goal.
Enabling teachers and students to share the responsibility for setting learning

goal and for evaluating progress toward meeting those goals.

Giving student the opportunity to have extensive input into the learning

process
Facilitating cooperative learning activities including peer evaluation and

tutoring, cooperative learning group and peer conferencing.

Providing a process for structuring learning in stages.
Providing opportunities for student and teachers to discuss learning goals
and the progress toward those goals in structured and unstructured

conferences.
Enabling measurement of multiple dimensions of student progress by
including different type of data and materials.

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2.8 DISADVANTAGE OF PORTFOLIO ASSESSMENT

Required extra time to plan an assessment system and conduct the

assessment.
Gathering all of the necessary data and work samples can make portfolios
bulky and difficult to manage.
Developing a systematic and deliberate management system is difficult, but
this step is necessary in order to make portfolio more than a random
collection of student work.
Scoring portfolios involves the extensive use of subjective evaluation
procedures such as rating scales and professional judgment and this limits
reliability.
Scheduling individual portfolio conferences is difficulty and the length of
each conference may interfere with other instructional activities.
PORTFOLIO PERFORMACE EVALUATION TECHNIQUIES

Portfolio performance is evaluated over a time interval of at least four year, with
return measured for a number of period with in the interval typically monthly or
quarterly .This provides a fairly adequate sample size for statistical evaluation
.Sometimes, however a shorter time interval must be used in order to avoid
examining a portfolio returns that were earned by a different investment manager.
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The example to follow will involve 16 quarterly observations for tractability .In
practice; one would prefer monthly observation if only four years were to be
analyzed.
In the simplest situation where the client neither deposit nor withdraws money
from the portfolio during a time period, calculation of the portfolios periodic
return in straight forward .All that is required is that the market value of the
portfolio be know at two point of time the beginning and the end of the period.
Performance Evaluation Techniques
i.
ii.
iii.
iv.

Performances evaluation involves

Evaluation of every transaction
Of a specific security in the portfolio
Performance of portfolio as a whole.The key dimension of portfolio
performance evaluation is the rate of return, risk and performance index.
Return per unit of risk

An obvious way to look at the performance of the portfolio is to find out the
reward per unit of risk undertaken .A risk- free security earn only risk- free
return .However the return earned over and above the risk- free return is the risk
premium and is earned for bearing risk .The risk premium may be divided by the
risk factor to find out the reward per unit of risk undertaken. This is also known as
reward to risk ratio. There are two methods of measuring reward to risk ratio as
follows:
A. Sharpe Ratio
This ration is also called Reward to variability Ration.IN this ratio, the
risk is measured in terms of standard deviation.
The Sharpe Index measures the risk premium of portfolio relative to
the total amount of risk in the portfolio. This index measures the slope
of the risk return line. The Sharpe Index helps summarizing the risk
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and return of a portfolio in a single measure that categories the

performance on risk and return of a portfolio in a single measures that
categories the performance on risk-adjusted basis. The larger the
index value, the better the portfolio has performed.
B. Treynor Ratio
This ratio is also called Reward to Volatility Ratio. The Treynor Index
measures the risk premium of the portfolio where the risk premium is the
difference between the return and the risk-free rate. The risk premium is
related to the amount of systematic risk present in the portfolio.
It may be noted that the numerator in both the Sharpe Ratio ans Traynor
Ratio is same i.e. the risk premium .However the two differ with respect
to the denominator. In Sharpe Ratio , the risk is measured by while in
case of Treynor ratio the risk is measured by .The measure assumes
that the portfolio is well diversified and there is no remaining
diversifiable risk also. So the sharp Ratio adjust the portfolio return for
systematic as well as unsystematic risk .
If the portfolio is well diversified, treynor Ratio is appropriate for
evaluating the performance of a portfolio .However if the portfolio is not
well diversified Sharpe Ratio should be used.

THE METHODS OF ASSESSING RISK ADJUSTED PERFORMANCE

BY SHARPES P INDEX AND TREYNORS INDEX

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The differential return earned by the fund manager may be due to difference in the
exposure to risk. Hence it is imperative to adjust the return for the risk. For this
purpose there are essentially two major methods of assessing risk-adjusted
performance:
a. Return per unit of risk
b. Differential return per unit of risk
a. Return per unit of risk:
The first of the risk adjusted performance measure is the type that assesses the
performance of a fund in terms of return per unit of risk. We can adjust returns for
risk in several ways to develop a relative risk-adjusted measure for ranking fund
performance.
Sharpe Ratio:
One approach is to calculate portfolios return in excess of the risk free return and
divide the excess return by the portfolios standard deviation. This risk adjusted
return is called Sharpe ratio. This ratio named after William Sharpe, thus measures
Reward to Variability.
This equation calls for three terms:
a. Annualized return of the fund
b. Annualized risk free return
c. Annualized standard deviation.
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In our previous example, we have got 11.33% as annualized standard deviation.

Suppose that the annualized return for the same fund is 15.50%. Also suppose that
the average yield on one year treasury paper is 5.75% (this can be taken as riskfree rate).
This suggests that the fund has generated 0.86-percentage point of return above the
risk-free return for each percentage point of standard deviation. The Sharpe ratio is
a measure of relative performance, in the sense that it enables the investor to
compare two or more investment opportunities.
A fund with a higher Sharpe ratio in relation to another is preferable as it indicates
that the fund has higher risk premium for every unit of standard deviation risk.
Because Sharpe ratio adjusts return to the total portfolio risk, the implicit
assumption of the Sharpe measure is that the portfolio will not be combined with
any other risky portfolios. Thus the Sharpe measure is relevant for performance
evaluation when we wish to evaluate several mutually exclusive portfolios.
This indicates that the fund has generated 0.09-percentage point above the risk-free
return for every unit of systematic risk.
As Treynor ratio indicates return per unit of systematic risk, it is a valid
performance criterion when we wish to evaluate a portfolio in combination with
the benchmark portfolio and other actively managed portfolios. Like Sharpe ratio it
is a measure of relative performance.
Sharpe versus Treynor Measure:
The Sharpe ratio uses standard deviation of return as the measure of risk, where as
Treynor performance measure uses Beta (systematic risk). For a completely
24

diversified portfolio one without any unsystematic risk, the two measures give
identical ranking, because the total variance of a completely diversified portfolio is
its systematic variance. Alternatively a poorly diversified portfolio could have a
high ranking on the basis of Treynor ratio and a low ranking on the basis of Sharpe
ratio. The difference in rank is because of the difference in diversification.
Therefore, both ratios provide complementary yet different information, and both
should be used.
b. Differential Return:
The second category of risk-adjusted performance measure is referred to as
differential return measure. The underlying objective of this category is to calculate
the return that should be expected of the fund scheme given its realized risk and to
compare that with the return actually realized over the period.
Calculation of alpha is a fairly simple exercise. The intercept term in the regression
equation is the Alpha. This number is usually very close to zero. A positive alpha
means that return tends to be higher than expected given the beta statistic.
Conversely, a negative alpha indicates that the fund is an under-performer. Alpha
measures the value-added of the portfolio given its level of systematic risk.
This measure of performance measurement is popularly known as Jensen alpha.
The Jensen measure is also suitable for evaluating a portfolios performance in
combination with other portfolios because it is based on systematic risk rather than
total risk.

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Appraisal Ratio:
If we wish to determine whether or not an observed alpha is due to skill or chance
we can compute an appraisal ratio by dividing alpha by the standard error of the
regression:
To interpret this ratio notice that the in the numerator represents the fund
managers ability to use his skill and information to generate a portfolio return that
differs from the benchmark against which his performance is being measured (e.g.
BSE Sensitive Index or Nifty).
The denominator measures the amount of residual (unsystematic) risk that the
investor incurred in pursuit of those excess returns. Thus this ratio can be viewed
as a benefit to cost ratio that assess the quality of fund managers skill.
M2 Measure:
Franco Modigliani and his granddaughter Lea Modigliani in the year 1997 derived
another risk-adjusted performance measure by adjusting the risk of a particular
portfolio so that it matches the risk of the market portfolio and then calculate the
appropriate return for that portfolio. It operates on the concept that a schemes
portfolio can be levered or de-levered to reflect a standard deviation that is
identical with that of the market. The return that this adjusted portfolio earns is
called M2.
Since the standard deviations have been equalized, M2 can be directly compared
with the return in the market. A high (low) M2 indicates that the portfolio has
outperformed (under-performed) the market portfolio.
The measures discussed above are extensively used in the mutual fund industry to
comment on the performance of equity schemes. The same measures can be used
26

to evaluate the performance of debt securities. However, measures involving use of

Beta are considered theoretically unsound for debt schemes as beta is based on the
capital assets pricing model, which is empirically tested for equities.

CONCLUSION

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An individual at certain point of time might feel the need to invest more. The need
for portfolio revision arises when an individual has some additional money to
invest .Portfolio revision involves changing the existing mix of securities .The
objective of portfolio revision is similar to the objective of portfolio selection i.e
maximizing the return for a given level of risk or minimizing the risk for a given a
level of return .The process of portfolio revision is also similar to the process of
portfolio selction.This is particularly true where active portfolio revision strategy is
followed.It calls for reallocation of fund among different industries through
industry analysis and finally selling and buying of stock within the industries
through company analysis .Where passive portfolio revision strategy is followed ,
use of mechanical formula pan may be made.

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