Strategic Wealth Management by Linear Programming Technique

Abstract

Wealth management is a retail investment advisory service usually for high net worth & other individuals. It incorporates financial planning, investment portfolio management and a number of aggregated financial services offered by a complex mix of asset managers, custodial banks, retail banks, financial planners and others. Among various asset classes, mutual funds are becoming increasingly popular in the context of wealth management due to its dual benefits of higher returns from capital markets and expert diversifications of constituent assets done by experts in the field. Moreover, huge volume of activities enable mutual funds to influence the market. High liquidity and exit routes associated with mutual funds further enhance its acceptability to investors. However, owing to the growing diversity of needs and objectives of investors, mutual funds have also been categorized and sub-categorized which leads to formation of sub-classes of assets. This study professes a way to formulate construction of portfolios consisting mutual funds of various types to gain the benefit of dual diversification. Linear programming technique has been used in this study to optimize the returns subject to constraints emanating from tolerance ceilings for risk and expense ratios.