Portfolio investment is an indirect investment which is done in a bunch of asset with a sole aim to earn the returns, unlike direct investments there is no involvement of the investor in the regular activities of the business.
The investment can be done in various classes of the assets such as stocks, government and corporate bonds, mutual funds, treasury bills, derivatives, commodities, futures and options, etc.
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The investment in all this class of assets is dependent on the requirement of the investor, the factors like risk bearing capacity and the quantum of fund the investor is willing to invest plays a vital role in deciding the class of assets. It is seen that the rate of return is directly proportional to the risk factor, Higher the risk bearing capacity higher the possibility of returns and vice versa. The money of investors with the high risk bearing capacity can be invested in the assets like stock, commodities, futures and options, etc. the investment in government bonds and treasury bills is safer thus they can be used to invest for the investors having a low risk bearing capacity.
The quantum of investment also affects the asset in which the investment is done. If the investment is done for the large amount then it shall be invested in the trading assets like stocks and options and if the amount is small then it shall be invested in the assets which require fewer investments.Thus it is necessary to set the target of the areas in which the investment is needed to be done.
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It is also to be seen that your portfolio is diversified and divided into the certain categories like if the investors is having a large quantum of investment then the asset in which it is to be invested shall be according to his requirement, if the risk tolerance is higher than more should be invested in the stocks but also it means that some of the part shall be also invested in the safer assets as it is advisable that one should not keep all his investment in a single form as it is risky to do so. So the investment shall be diversified and also used as per the specification of the investors
The quantum of money invested in one stock or asset also shall be taken into account, as if the most of the part of your portfolio is invested in only one asset and if the year of that investment is not good then the investor will need to suffer from huge losses and the objective to earn higher return will not be arrived at.
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One should also see to it that he manages his portfolio in the regular course and rebalance all the investment as they could have earned different amount of returns in the period thus it is to be seen that after the specific period of the time the investment is seen upon and the planning shall be done accordingly. Also one should see to his long term requirement and should not divert with the short term gains occurring in the other class of asset.