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Portfolios & Diversifications

What are Portfolios and Diversifications?

Portfolio is nothing but when different securities within the asset or other asset are put together with one particular objective . Portfolio may contain various asset class depending on the objective and risk appetite of client. Here portfolio is devised in such a manner that it helps in achieving the investors goals.

Different Types of Portfolios

There are different types of portfolios which we create for the clients based on their risk appetite.

1) Aggressive Investment Strategies

Aggressive investment strategies is for those who are looking for the highest possible returns and are ready to take highest risk for the same ie. High risk Tolerance and longer time horizon.

Aggressive portfolios generally have a higher investment in equities.

Investment Horizon ideally : 7 Years and More

2) Conservative investment strategies

Conservative investment strategies is for those who are looking for the safety as a highest priority, their risk tolerance is the lowest and generally have shorter time horizon.

Conservative portfolios generally will invest in the liquid fund or Fixed deposit or will have very less equity portion.

Investment Horizon ideally : 1 day to 3 years

3) Moderately Aggressive Portfolio Characteristics

Main objective of this portfolio is to look for capital growth through equity investments and provide stability in portfolio value by investing 35-40 % in fixed income securities thereby limiting down-side risk (risk of capital erosion)

Investment horizon : 4 years to 7 years Medium to high-risk tolerance

Why Portfolios ?

As discussed previously, main reason to have a portfolio is for diversification which he had already discussed during previous pages.

Since different securities perform differently at different points in time, a mix of assets and securities limits the downside of any investments. By investing in both stocks and bonds for example, the loss caused due to a possible fall in stock prices is limited by the stability offered by bonds and therefore extent of loss is minimized.

There have been all sorts of academic studies and formulas that demonstrate why diversification is important, but it's really just the simple practice of "not putting all your eggs in one basket." If you spread your investments across various types of assets and markets, you'll reduce the risk of catastrophic financial losses.