Portfolio investment is a type of investment where you own equity, debt, mutual funds, and other financial assets, expecting them to grow and bring in returns later. It is a passive form of investing and is not the same as direct investing. It could cover investment in various asset classes, such as stocks, government bonds, ETFs, and mutual funds.
Now that you know what portfolio investment is, you must also know the different types of portfolio investments.
There are four types of portfolios. These are:
Low-risk portfolios:
Such a portfolio contains low-risk options that offer little to no risk with decent returns. They may not provide aggressive returns but can lower volatility and offer financial security and stability to your portfolio.
Medium-risk portfolios:
Such a portfolio offers more risk than low-risk portfolios but is less risky than a high-risk portfolio. If you are looking for a balanced portfolio that is not tilted to either of the extremes, this can be the ideal pick.
High-risk portfolios:
Evidently, as the name suggests, this portfolio investment includes many high-risk options that also offer high returns. This is suitable for investors with a high-risk tolerance.
Risk-free portfolios:
These portfolios have almost no risk and can be ideal for new investors and beginners.
What is foreign portfolio investment?
Foreign portfolio investment consists of owning equity, debt, mutual funds, and other financial assets held by investors in another country. This is also a passive form of investing, and you do not directly own any stake in the company you invest in.
What are the benefits of portfolio investment?
Here are some benefits of portfolio investment:
- An investment portfolio can help you diversify your portfolio as per your goals. For example, you can add stocks, mutual funds, bonds, etc., and build a portfolio that collectively takes you to your goal.
- It offers a passive form of investing and hence benefits you if you do not want the hassles of regular buying and selling. Active investment management can also result in high transaction costs and taxes that are reduced with portfolio investment.
- You can create an investment portfolio with income securities and create a substitute for your salary. Portfolio investments with a heavy concentration on dividend-paying stocks can create a regular source of income for you.
- Portfolio investment offers a more systematic approach to investing. The focus is not on individual securities but on how they impact your returns jointly.
- Portfolio investment offers risk diversification between different investments on the portfolio. And some financial experts believe that portfolio investment can deliver a steady rate of return that is better than individual investment returns on average.
To sum it up
The types of investments in a portfolio can be chosen based on various factors like your risk tolerance, investment horizon, invested capital, etc. So, evaluate your goals before you start. You can use online apps like the moneyfy app to get started with portfolio investment. With a wide variety of investment options, you can invest in a lump sum or via a SIP and grow your money over time.
