A portfolio investment is an investment process in which the investor purchases the stocks and bonds of various companies to expect a good return in the future. Portfolio investment is like a purse in which we keep different types of financial assets in one place. In portfolio investment, you can easily check all your investments’ value in one place without any problem. It can be done directly or indirectly. In the indirect portfolio investment, some third-party purchases investment stocks on your behalf; here, the broker can suggest the stocks. Let us dive deep into this topic.
Components of Portfolio Investments
There are various types of Portfolio Investment available in the market, some of which are given below:
When you want to buy a certain percentage in a company, you will have to purchase its stocks. Shares can give you a good return even in a short period, but the risk factor of shares is high. Shareholders are considered the co-owner of the company. They can be a part of decision-making also.
Also Read: High Risk Mutual Funds
It is a type of loan you give to the bond issuer instead of some interest after a certain period. Bonds are considered safe investments with low risk. Bondholders are considered the creditors of the company.
The alternatives may include investments such as mutual funds and government securities. In the case of mutual funds, you buy shares for a longer duration or at regular intervals in the same company. It is just like purchasing some amount of gold every month and selling it at a future date. On the other hand, government securities tend to be the safest investment option available in the Indian Market. Earlier, it was only for financial institutions, but now it can also be purchased by the public.
- A portfolio investment is made with the objective that it will give a good return or grow in value, which will benefit the future economic activity of the investor.
- It is a passive investment process, i.e. you do not require hands-on management like in the case of direct investment, in which you have to be active all the time. Your broker can also manage the portfolio investment.
- Two important things to keep in mind while building your investment portfolio are the Risk Factor and the Time Duration of the stocks.
Types of Portfolios
Here are some of the major investment portfolio types:
An aggressive portfolio is one in which the investor purchases high-risk, high gains funds that can generate maximum profit but at a higher risk. If you want to build an aggressive portfolio, you should purchase stocks of such companies that are still growing and have high rates of fluctuations. Still, you have to be active all the time because sometimes, in search of maximum profit, you will have to suffer loss also, so make sure to be rational in investment.
A defence portfolio is when the investor purchases stocks that possess very low risk. These stocks don’t give maximum profit during a market upswing, and neither do they crash rapidly in case of downfall. The companies that manufacture daily use goods, medical supplies, and utilities generally come under this category because the demand for these products is always high irrespective of any adverse situation. Investors who don’t want to take much risk can go for a Defensive Portfolio.
An income portfolio is one in which the investor purchases those stocks which will generate higher dividends, but the risk factor is comparatively low. This portfolio is almost similar to the defence portfolio, except that the stocks yield higher dividends. An example of such a type of stock is the infrastructure companies that remain stable even in adverse conditions. To make such a portfolio allocation and generate a monthly income, you should probably go for stocks of Infrastructure, FMCG, and other utility companies.
This portfolio is for investors who can undertake greater risk for a very high return. Not all investors can maintain a speculative portfolio. The companies that fall under this category are technology companies working on some cutting-edge technology. This type of portfolio allocation is for those investors who have excess funds. An initial Public Offering is a good example of speculative investment.
As the name suggests, this type of portfolio provides balanced growth and the best result. All kinds of assets are accumulated in this category. It is best suited for a service person with a fixed monthly income. So we suggest you go for Hybrid Portfolio if you want a balanced monthly income and stability in your funds.
Also Read: Hybrid Mutual Funds
How to build an investment portfolio for beginners in India?
If you are a beginner and want to create an investment profile, you don’t have to worry, as we will guide you through the portfolio investment process. First, you should have basic knowledge about the share and bond market and how it works, as this will help you save a significant amount of time and money. Some important tips that will help you in investment are given below:
A Clear Objective
We advise you to set a long-term objective and keep your vision clear, as it will be beneficial for maximum profit. Also, be clear whether you want to save the money for your own expense or save it for the future of your children, as this will help you plan accordingly.
Even if you want to invest money in the short term and want to withdraw the money earlier, it is advisable to alternatively plan a long-term plan because, in the share market, it is not certain that you will be able to withdraw your money when needed or not. That’s why a long-term plan is important.
The Risk Level
Before investing in any fund, please carefully analyse the risk involved in that particular fund and then decide on the investment. It is better to compare all the funds and do short research before investigating any product. This research will help you understand the loss you can face in your investment journey.
Don’t be biassed towards a particular company. You must support a particular company and rationalise all the other companies. It is advised that you invest wisely and control your emotions.
Building a diverse investment portfolio not only helps an individual protect their invested capital but also enables them to place it in such a way that it has the potential to earn reasonable returns. Starting to invest is the first of many decisions that you need to take on your investment journey. Investment portfolio management is also an essential task that needs experience to generate high returns. That is why it is recommended to start investing early in life and make sure to build a robust financial portfolio in order to gain in the long term.
Some of the examples of investments that can lead to a diverse portfolio. Some of the investment portfolio examples are stocks, bonds, mutual funds, and government securities.
Investment is like setting aside your hard-earned money and making it grow over time. While the portfolio is a wider term. Building a diverse investment portfolio can help you gain high returns in the long term.
Investing is one of the best ways to grow your money. It is like giving your hard-earned money a job to do-make you wealthier over time. Building a diverse and robust investment portfolio can lead to high returns in the long term.
Ans. A Balanced sheet, statement of cash flow, and Income statement of a company are most important to investors.
Asset portfolio allocation refers to dividing your investments among different assets. You should allocate your resources depending on how long you tend to invest and your risk taking ability.