A portfolio is the combination of various investment securities like bond, shares, gold, real estate, derivatives, etc.


The financial markets are continually changing. Portfolio revision means changing the existing mix of securities. According to the objective of an investor, a portfolio is selected. But when an investor invests in a portfolio, the objective of investor changes with the passage of time. It is the process of adding more assets to an existing portfolio or changing the ratio of funds invested. Portfolio revision leads to purchase and sale of securities. The objective of portfolio revision is as same as the objective of an investor (i,e. maximization of returns and minimizing the risk).


Example: At the time of selection, Portfolio ‘A’ has three securities A1, A2, A3 and the amount investing is Rs. 1,00,000 with ratio 5:3:2 respectively. When the portfolio is invested, the objective of investor changes due to excess of funds i,e Rs. 1,20,000.


Portfolio ‘A’ Ratio Fund- 1,00,000 Excess of Funds- 1,20,000
A1 5 50,000 60,000
A2 3 30,000 36,000
A3 2 20,000 24,000


Need for Portfolio Revision:


A portfolio is revised due to:

  • Change in the financial market (bull and bear market)
  • Market timings
  • Excess of funds
  • Shortage of funds
  • Change in investment goals
  • Change in risk tolerance

Need for portfolio revision may arise due to change in financial market or change in the investor’s position.

Constraints in Portfolio Revision:


  1. Transaction Cost: Frequent buying and selling of securities for portfolio revision may push up transaction costs thereby reducing the gains from portfolio revision.
  2. Intense Research: Portfolio revision is a difficult and time-consuming process and a lot of research has been conducted while selecting any portfolio.
  3. Taxes: Sale of securities arrises capital gain taxes. Long-term capital gains are taxed at a lower rate than short-term capital gain. For long-term capital gain, securities must be held more than 12 months by an investor. Frequent sale of securities may result in short-term capital gain which would be taxed at higher rates.
  4. Government Regulations: Investment companies and mutual funds manage portfolios. These statutory stipulations often act as constraints in timely portfolio revision.

Portfolio Revision Strategies:

The choice of the strategy will depend on investor’s objectives, skill and time. Two different strategies are adopted for portfolio revision.

Active Revision Strategy Passive Revision Strategy
The market is not efficient Market is efficient
Frequent buying and selling Infrequent buying and selling
No determined rules Pre-determined rules
Heterogeneous expectations Homogenous expectations
Major changes Minor changes
More transaction cost Less transaction cost

Formula Plan:

Formula plan consists of the pre-determined rules and regulations for purchasing and selling of securities. It enables the investors to estimate the total amount that he has to spend on the purchase of securities. Investors can earn surprise profit by using formula plan. An investor should buy when prices are low and sell when prices are high. Formula plan helps an investor to make the best possible use of fluctuations in the financial market. With the help of formula plan, an investor can divide their portfolio into a defensive and aggressive portfolio. The aggressive portfolio consists of equity shares while defensive portfolio consists of debentures and bonds.

Types of Formula Plan





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