A Conceptual Framework for Effective Investment Management

The research paper tries to cover studies on investment behaviour, work by Harry Markowitz, Roy, Tobin, Sharpe, studies on diversification, studies on Mutual funds, studies analyzing securities, studies involving strategies for wealth creation and some Indian Empirical studies focusing on Effective Investment Management.The selection of an investment decision, in literature and studies strongly attribute individualistic choices that influence investment decision, which are neither homogenous nor ubiquitous. Gender, Age, Number of Dependents, Marital Status, Income and Wealth affect Investment decision indirectly by affecting the risk tolerance capacity of an individual. Before making an allocation towards a portfolio one must assess these factors. Markowitz provided the basis for portfolio creation. A portfolio must strive to either maximize return for a given level of risk or minimize risk for a given level of return. Roy explained the concept of diversification in terms of a need of inducing safety in the portfolio, which will enable an investor to obviate a financial disaster. Tobin discussed how an individual could attain efficient portfolio by incorporating risk free securities in the portfolio consisting of risky securities. Prudent selection and broad diversification cannot substantially reduce the risks associated with given expected returns. Hence, according to Lintner one can obtain a portfolio with favourable combinations of risk and return but not a portfolio which is efficient in the Markowitz sense. Sharpe contributed by providing the basis of pricing capital assets in equilibrium. Sharpe also created various portfolio selection models. The paper also provides a bird’s eye view of various studies, which have analysed the behaviour of share prices in stock market. The knowledge gained may be used for effective investment management.A large number of Indian Empirical work is present paving way for effective investment management. One may use Goal Programming Model developed by Agarwal (1978) to accommodate multiple objectives while creating portfolios. Risk and return profile of the investor should be used to form portfolios rather than framing strategies to beat the market.