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• As per portfolio definition, it is a collection of a wide
range of assets that are owned by investors.
• The said collection of financial assets may also be
valuables ranging from gold, stocks, funds, derivatives,
property, cash equivalents, bonds, etc.
• Individuals put their money in such assets to generate
revenue while ensuring that the original equity of the
asset or capital does not erode.
 RISK IN
PORTFOLIO
Risk means either the loss
of money or making lesser
than expectations. Each investor has a unique risk profile
that determines their willingness and
ability to withstand risk.
In general, as investment risks rise,
investors expect higher returns to
Investors are exposed to compensate for taking those risks.
both systematic and
unsystematic risks.
 Market risk is the risk of Interest rate risk is the risk that arises for bond Purchasing power risk is
the possibility that you will
losses in positions arising owners from fluctuating interest rates. How
not be able to buy as much
from movements in market much interest rate risk a bond has depends on with your savings in the
variables like prices and how sensitive its price is to interest rate changes future. It represents a loss
volatility. in the market. of value due to inflation.

Business risk is defined as the

Financial risk refers to your
possibility of occurrence of any
business' ability to manage your
unfavorable event that has the
debt and fulfil your financial
potential to minimize gains and
obligations.
maximize loss of a business .
 MINIMIZING RISK
EXPOSURE
MANAGING MARKET RISK
MANAGING INTERST RATE RISK
• An investor must study the price behaviour of the
• Holding the investment to maturity
stocks.
• Buying treasury bills and bonds of short
• Further ,the investor should be prepared to hold
maturity , as after maturity that money can be
stocks for a minimum period of time to reap the
reinvested to suit the market interest rates
benefits of rising trends in the market.
MANAGING BUSINESS AND FINANCIAL
MANAGING INFLATION RISK RISK
• To have investment in short term securities and to • Analysing the strength and weakness of the
avoid long term investments as rising consumer industry to which the company belongs.
price index may wipe out the real rate of interest • Analysing the profitability trend of the
in long term. company.
• Investment diversification will help. • Analysing the capital structure of the company.
 RETURN IN
PORTFOLIO
 What Is Portfolio
Return?
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Portfolio return refers to the gain or loss realized

by an investment portfolio containing several types
of investments.
Portfolios aim to deliver returns based on the stated
objectives of the investment strategy, as well as the
risk tolerance of the type of investors targeted by
the portfolio.
 PORTFOLIO
RETURN
FORMULA
Portfolio return can be defined as the sum of
the product of investment returns earned on
• w is the weight of each asset the individual asset with the weight class of
• r is the return of an asset that individual asset in the entire portfolio.

Example
Consider ABC Ltd, an asset management
company has invested in 2 different assets
along with their return earned last year.
You are required to earn a portfolio return.
The portfolio return will be 10.33%
 Risk & Return: You Can't Have
One Without the Other
First is the principle that risk and return are directly related. The greater
the risk that an investment may lose money, the greater its potential for
providing a substantial return. By the same token, the smaller the risk an
investment poses, the smaller the potential return it will provide.

The second principle is that if you can get a better-than-average return

on an investment with less risk, you may be willing to sacrifice
potentially greater return to avoid greater risk.

The third principle is that you can balance risk and return in your
overall portfolio by making investments along the spectrum of risk,
from the most to the least.
Submitted By :
Bhakti
Mcom 2
2121004
 DIVERSIFICATION :
• Diversification is a risk management strategy
that mixes a wide variety of investments within
a portfolio.
• A diversified portfolio contains a mix of distinct
asset types and investment vehicles in an
attempt at limiting exposure to any single asset
or risk.
• Diversification simply means not to put all Eggs
in one basket.
• Diversification is most often measured by analyzing
the correlation coefficient of pairs of assets.
 REASONS OF DIVERSIFICATION :
• For growth of business operations.
• As not all investment avenues perform well at
same time.
• Diversification enables you to have securities
whose risk is smaller than individual securities.
• Different type of investments affected
differently through different economic factors.
TYPES OF DIVERSIFIED
INVESTMENTS :
#1 – Different Asset Classes
• Different classes of assets such as stocks,
fixed-income investments, commodities,
real estate, cash, etc. can be included in a
portfolio for diversified investment resulting
in lowering the overall risk. #2 – Different Individual
Companies :

• Different individual companies

perform differently in the
market(i.e. New co. & Growing
co.) according to the different
factors.
• So there should be a mix of such
companies to reduce the
portfolio’s overall risk.
#3 – Different Industry:
• The portfolio should have balance #4 – Different Geographical
across multiple industries in the Dimensions :
economy as some events are
industry-specific. • Most investors have biasness towards
• So, one should invest in different instruments issued in their home
industries (plastic,chemical,steel) country.
so that a portfolio’s overall risk is • But it is always beneficial to diversify the
low. portfolio internationally because an
event that is negative for one country
might have no effect on other countries
or might have a positive effect on other
countries.
• So if the investment is diversified
geographically, then a loss in investment
in one country can be offset by
international investments.
 EXAMPLE :
• All of a sudden, the volatility in the share
market increases, and then, in that case,
there are chances that the people who have
invested in stocks incur a huge loss.
• In such cases, if a person is holding
investments in some other class of assets as
well like fixed interest investments or direct
property, which do not have an impact on the
same event during the same period, then the
return generated out of these investments
will help in reducing the overall risk of the
portfolio and smoothing the overall returns.
METHODS OF DIVERSIFICATION :

• The traditional belief involves “not putting all eggs in one basket.”
• This policy involves as many baskets as possible, carried to the extreme, it
is good to have as many companies as possible, and as many industries as
possible in one’s portfolio.

1. Randomness in
Selection of 3. Adequate
companies and Diversification
industries

4. Markowitz
2. Optimization of
Diversification
selection process
1. Randomness in Selection of Companies and
Industries:
• The probability of reducing risk is more with a random selection as
the statistical error of choosing wrong companies will come down
due to randomness of selection which is a statistical technique.
• This involves placing of companies in any order and picking them
up in random manner.

2. Optimisation of Selection Process:

• Given the amount of money to be invested there is optimum
number of companies, where money can be invested.
• If the number is too small, risk cannot be reduced
adequately.
• If number is too big, there will be diseconomies and
difficulty of supervision, analysis and monitoring, will
increase risk again. There is ,thus, an optimum number of
companies to be chosen for a given amount of investment.
 3. Adequate Diversification:
• This involves as many industries and
companies or securities as possible to
get the best results.
• Principle believes in the possibilities of
reducing risk to even zero, if there are
adequate no. of companies and
industries.
• Markowitz emphasized that what is
needed not only the no. of securities but
the right kind of securities to be chosen.
4. Markowitz
Diversification:
• Markowitz emphasizd on right kind
of securities.The main purpose is
to reduce the unsystematic risk
arising out of company’s policies
and performance.
• Thus, many of such risks can be
reduced by a proper choice of
companies and industries.
 INTERNATIONAL DIVERSIFICATION :
• The attempt to reduce risk by
investing in more than one nation.
• By diversifying across nations whose
economic cycles are not perfectly
correlated, investors can typically
reduce the variability of their return.
• The easiest and most common way to
invest in foreign markets is by
purchasing exchange-traded funds
(ETFs) or mutual funds that hold a
basket of international stocks and
bonds.
 USEFULNESS OF INTERNATIONAL
DIVERSIFICATION :

● Size may widely vary for securities .

● Scope for larger investments, larger
diversification.
● Return on foreign currency are more profitable
than domestic currency.
● Eps of developing country may provide
chances for upliftment.
● Chances of risk may reduce and returns may
increase.
 RISK RELATED TO INTERNATIONAL
INVESTMENT :
● Economy and Monetary
policies of different nation
are along a risk factor.
● Political factor of different
economy or Social
development may cause
problem.
● High transaction costs.
● Liquidity risks.
● Unforseen events such as
wars, conflicts.
● Risk of currency
fluctuations.
 BIBILIOGRAPHY:
• Books :
• Sapm by V.A Avadhni
• Sapm by Sudhindra Bhat
• Investment analysis and portfolio management by Prasanna Chandra
• SAPM by Punithavathy Pandian

• Links:
• www.wallstreetmojo.com
• www.investopedia.com
• www.forbes.com
• https://groww.in/p/portfolio
THANK YOU