The formula plans do not obviate the need for making forecast. Solution: Portfolio Return is calculated using the formula given below Rp = ∑ (wi * ri) 1. Formula plans normally. Each of these has its own methodology and is useful for investors to make a profit. Securities can be purchased and sold only when there are changes or fluctuations in the financial market. When portfolio revision take place, enough time has to be provided for the revised strategy to work. 1. Formula plans do not help the investors make forecasts of market movements. 1. The investor is able to control buying and selling of securities. The formula plans are formulated only when the investor has a pool of funds which he wants to invest in securities. Secondly investor should make a regular commitment of buying shares at regular … 2. Without such forecasts best stocks cannot be identified. There are three basic formula plans namely, constant rupee value plan, constant ratio plan and variable ratio plans. Why Formula Plans ? Let’s start with a two asset portfolio. This plan indicates the rupee value which remain constant in the stock portfolio of the total portfolio. It is very simple to operate. The action points enable the investor to maintain the constant rupee value by effecting transfers from aggressive to conservative portfolio and vice versa. The formula plans work fruitfully only for long period of holding of securities. When there is a continuous and sustained rise or fall in share prices, the investor will make enormous profit. Formula Plans in Portfolio Revision | Meaning | Advantages | Disadvantages. The timing for revision is found out by the use of formula plans. P invests in the same risky assets as the Market Portfolio and in the same proportions! The conservative portfolio is intended to complement the aggressive portfolio. These predefined rules are known as formula plans. Formula plans are certain predefined rules and regulations deciding when and how much assets an individual can purchase or sell for portfolio revision. Jensen's Measure = (16.18% - 4.0%) - [0.98 (17.97% - 4.0%)] = 12.18% - 13.69% = -1.51%. Advantages of Constant Rupee Value Plan 2. Answer: HPR (ACE) = ($6,528 - $5,619)/$5,619 = 16.18%. The investor should hold two portfolios namely. Under passive revision strategy adjustments to portfolio is carried out according to certain predetermined rules and procedures designated as Formula plans. This help investors to adjust his portfolio according to changes in. What are Formula Plans ? If we take an example, you invest $60,000 in asset 1 that produced 20% returns and $40,000 invest in asset 2 that generate 12% of returns. This plan is found to be profitable when there are large number of fluctuations in prices. 10 Portfolio Revision: Formula plans; constant rupee plan, constant ratio plan and variable ratio plan . Constant rupee value Constant ratio value Variable ratio formula plan. The portfolio management process needs frequent changes in the composition of stocks and bonds. Also refer to the other links for handwritten class notes and answers to the questions in the question banks. There are rules associated with the portfolio revision strategy, specifically that which is passive in approach, which decides the changes that will need to be made to a portfolio. The rules and regulations laid down by the formula plans are rigid and they enable the investors to overcome emotions and make rational decisions. Constant Rupee Value Plan. If portfolio revision is done according to this principle, investors would be able to benefit from the price … The timing for revision is found out by the use of formula plans. So, the ratios are to be varied whenever economic index or market index changes. Securities can be purchased and sold only when there are changes or fluctuations in the financial market. 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