MBA (Finance) – IV Semester, Investment and Portfolio Management, Unit 4.3
Portfolio Construction
Portfolio is a combination of securities such as stocks, bonds and money market instruments. The process of blending together the broad asset classes so as to obtain optimum return with minimum risk is called portfolio construction. Diversification of investments helps to spread risk over many assets. A diversification of securities gives the assurance of obtaining the anticipated return on the portfolio. In a diversified portfolio, some securities may not perform as expected, but others may exceed the expectation and making the actual return of the portfolio reasonably close to the anticipated one. Keeping a portfolio of single security may lead to a greater livelihood of the actual return somewhat different from that of the expected return. Hence, it is a common practice to diversify securities in the portfolio.
Portfolio is a combination of securities such as stocks, bonds and
money market instruments. The process of blending together the broad asset
classes so as to obtain optimum return with minimum risk is called portfolio
construction. Diversification of investments helps to spread risk over many
assets. A diversification of securities gives the assurance of obtaining the
anticipated return on the portfolio. In a diversified portfolio, some
securities may not perform as expected, but others may exceed the expectation
and making the actual return of the portfolio reasonably close to the
anticipated one. Keeping a portfolio of single security may lead to a greater
livelihood of the actual return somewhat different from that of the expected
return. Hence, it is a common practice to diversify securities in the portfolio.
Approaches in Portfolio Construction
