A portfolio in stock market is a group of assets that investors own. The assets could be gold, stocks, units of mutual funds, and other financial instruments. It could also include real estate and bonds.
You can become a more stable investor if you have a diverse portfolio in different sectors.
Content:
- Portfolio Meaning In Finance
- Investments Components In A Portfolio
- Types Of Portfolio
- Value Portfolio vs Growth Portfolio
- Portfolio Allocation
- Investment Portfolio Example
- How To Build An Investment Portfolio For Beginners In India
- Top Investor’s Portfolio
- Quick Summary
- FAQs
Portfolio Meaning In Finance
A portfolio is nothing but a collection of financial instruments like stocks, bonds, commodities, cash, and exchange-traded funds (ETFs). Many have this misconception that investments in stocks are the heart of a portfolio, but this is not true.
A portfolio can have a lot of different assets in it, like real estate, art, and even other forms of investments.
Investment Components In A Portfolio
The components in a portfolio are:
- Stocks
- Bonds
- Alternative Investments
1. Stocks
Stocks are the most common assets that you will find in a portfolio. Owning a stock of a company means owning a part of the company. The size of the ownership depends on the number of shares you own.
When you own a share of the company, you are entitled to a fraction of its profits. However, if the company suffers a loss, you will also suffer a loss.
2. Bonds
Bonds are fixed-income investments; they are loans that individuals like you and me give to corporations, organizations, and even national governments.
This means companies or governments take loans from retail investors (like you & me) instead of taking loans from a bank. The company/government pays the interest to its investor at specified intervals (usually once a year or twice a year).
Bonds have fixed returns. The time period, the principal amount, and the interest rate are all predetermined in bonds. Even if the company goes bankrupt, it is still obligated to pay you.
The only disadvantage is that you do not have the opportunity to earn high profits as you would in stocks.
To get a detailed understanding of Stocks and Bonds, you can read our article on the Differences between Bonds and Stocks.
3. Alternative Investments
An alternative investment is a type of investment that doesn’t fit into the conventional investment types like investing in stocks, bonds, etc.
Investing in real estate, Mutual Funds, Commodities, ETFs, Debt Funds, EPFs, and PPFs are a few examples of alternative investments.
If you don’t know what an ETF is, then read our blog on What is an ETF?
Alternative investments can be classified as either Tangible or Intangible.
1. Tangible Alternative Investments:
Fine Art
Precious Metals
Antiques
2. Intangible Alternative Investments:
Hedge funds
Private equity
Venture Capital
Many alternative investments outperform traditional investments in terms of returns.
Furthermore, the availability of a diverse range of alternative investments makes them a suitable choice regardless of the investor’s risk appetite or market research.
Types Of Portfolios
There are multiple types of Portfolios based on your investment strategies. Namely-
- Income Portfolio
- Growth Portfolio
- Value Portfolio
- Hybrid Portfolio
1. Income Portfolio:
An Income Portfolio is a collection of assets that provide returns based on dividends, interest, and capital gains.
If you are not well-versed with the terms above, let me explain them to you:
- Dividend is a part of a company’s profit paid annually to its shareholders.
- Interest is when you deposit money in a savings bank account or a fixed deposit. The interest rate is fixed, and the money is paid to you after a fixed period of time.
- Investing in assets like stocks, property, or gold increases in value over time. This increase in asset value is called capital gain.
You can increase your Income Portfolio by buying certain stocks, bonds, and debentures that give above-average dividends, interest, and capital gains.
Let’s take an example of Investing in Dividend Growth Stocks
Dividend growth stocks are companies that regularly increase their dividend payments. This is a relatively passive method of increasing portfolio income.
You may also read: Highest Dividend Paying Stocks in India
Earnings from investment properties are also considered sources of portfolio income.
2. Value Portfolio:
A value portfolio is an investment strategy that holds undervalued stocks due to certain market inefficiencies.
When these inefficiencies are resolved, the value of the stock increases. As a result, the value investor gains good returns. The investors believe in the value of the company irrespective of its market price.
The objective of a value portfolio is used to make long-term investments that can grow steadily over time. They have a high potential for growth.
Many times, undervalued stocks are undervalued for a good reason. The reason could be that a company has lost its competitiveness or couldn’t be up-to-date with the new trends.
3. Growth Portfolio:
The main objective of the growth portfolio is to expand its funds so that it can invest in stocks that generate higher returns with little or no payouts.
Confusing, isn’t it? Keep reading along….
Taking more risks and investing in growing businesses is what a growth portfolio tries to do. A growth portfolio is a collection of stocks that aims to grow in value over time.
These are fast-growing businesses that invest in expansion, acquisitions, or research and development with the money they make. The stocks here give better returns but are also risky at the same time.
Growth stocks initially focus on building up their revenue, and then after a while, they begin to focus more on profitability and growth.
If you’re wondering what makes a growth portfolio different from a value portfolio, refer to the table below!
Value Portfolio Vs. Growth Portfolio
Both the portfolios can be differentiated based on the following parameters.
| Parameters | Value Portfolio | Growth Portfolio |
| Definition | A value portfolio is an investment strategy that holds undervalued stocks based on their market price due to certain market inefficiencies. | A growth portfolio is a collection of stocks that aims to grow over time. |
| Time Frame | If a company is operating in the right direction, its stock price might rise quickly. | They take a longer time to gain their potential |
4. Hybrid Portfolio
Hybrid portfolio contains many asset classes, including equities, debt, and others depending on the investment objective.
Hybrid portfolios have the ability to earn higher returns than debt securities while maintaining a lower risk profile than equities.
This portfolio gives you the benefit of diversification because they invest in different types of assets.
Now that we know the types let’s learn how to diversify our portfolios.
What Is Portfolio Allocation?
Portfolio Allocation is also known as Asset Allocation. Here, you strategically plan to distribute the assets of your portfolio based on your financial goals, risk tolerance ability, and time frame of investing.
To give you a better understanding of Portfolio Allocation, let us walk you through this example.
Investment Portfolio Example
Suppose a group of four friends go to a multi-cuisine restaurant.
Each one of them decides to order different cuisines of food. One ordered Chinese, the other ordered Italian, the third one ordered South Indian, and the last friend ordered Bengali cuisine.
The table looks mouth-watering with all the multi-cuisine dishes.
We can say that the table is a portfolio, and the dishes are different assets in a portfolio.
When you invest in a variety of assets at the same time, you can obtain diversified results because each asset responds differently to the same event.
When it comes to portfolio management, one of the most important things to keep in mind is understanding diversification.
This means your portfolio should contain a combination of tech stocks, energy stocks, and, let’s say, healthcare stocks. Your portfolio might also have other investment instruments such as bonds, commodities, mutual funds, etc.
Do you want to know the Top Pharma Companies in India?
Based on your requirements, you can build your portfolio accordingly!
How To Build An Investment Portfolio For Beginners In India?
The most important thing to do when you build a portfolio is to make sure that you have enough growth opportunities and an optimum risk appetite.
The tip is to figure out how much risk you’re willing to take while building a well-balanced portfolio.
Here are some things you can do to build a strong investment portfolio:
1. Allocation Of Assets
The first rule of building a portfolio is to distribute your money between different types of assets like stocks, bonds, government securities, cash, etc.
2. Financial Goals
Before you start building your portfolio, make a list of your short, medium, and long-term financial goals.
Short-term goals can be going on a vacation. Mid-term goals can include things like buying a car. And Long-term goals can be saving money for your retirement, etc.
You should always make sure that your asset allocation reflects these goals.
3. Diversification of Risks
To be smart with your money, diversifying your risk is one of the most important things to do. Different assets have different levels of risk, and thus investing in multiple assets can reduce the impact of risk that comes from one type of asset.
Top Investor’s Portfolio
| Individual Investors | |
| Name | Net Worth (in cr) |
| Rakesh Jhunjhunwala and Associates | 32,017 |
| Premji and Associates | 215,455 |
| Radhakrishan Damani | 175,051 |
| Mukul Agrawal | 2,733 |
| Ashish Dhawan | 2,135 |
| Anil Kumar Goel and Associates | 2,107 |
| Ashish Kacholia | 1,871 |
| Mohnish Pabrai | 1,346 |
| Bhavook Tripathi | 1,095 |
| Dilipkumar Lakhi | 719 |
| Institutional Investors | |
| Name | Net Worth (in cr) |
| President Of India | 1,520,131 |
| SBI Group | 325,643 |
| ICICI Group | 287,291 |
| HDFC Group | 164,284 |
| Reliance Group | 151,022 |
| Axis Group | 94,074 |
| Birla Group | 39,439 |
| Sundaram Group | 28,315 |
| General Insurance Corporation Of India | 15,316 |
| Franklin India Group | 13,626 |
Note: The data is used for education purposes and it may change with respect to time.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:
Quick Summary
- A portfolio is nothing but a collection of financial instruments like stocks, bonds, commodities, cash, and exchange-traded funds (ETFs). It contains a lot of different assets in it, like real estate, art, and even other forms of investments.
- The components in a portfolio are:
- Stocks – When you own a share of the company, you are entitled to a fraction of its profits. However, if the company suffers a loss, you will also suffer a loss.
- Stocks
- market
- Bonds – Bonds are fixed-income investments; they are essentially loans given by individuals like you and me to corporations, organizations, and even national governments.
- Alternative Investments – An alternative investment is a type of investment that doesn’t fit into the conventional investment types. Investing in real estate, Mutual Funds, ETFs, Debt Funds, EPFs, and PPFs are a few examples of alternative investments.
- Stocks – When you own a share of the company, you are entitled to a fraction of its profits. However, if the company suffers a loss, you will also suffer a loss.
- There are multiple types of Portfolios based on your investment strategies:
- Income Portfolio – An Income Portfolio is a collection of assets that provide returns based on dividends, interest, and capital gains.
- Growth Portfolio – Growth Portfolios are fast-growing businesses that invest in expansion, acquisitions, or research and development with the money they make. The stocks here give better returns but are also risky at the same time.
- Value Portfolio – A value portfolio is an investment strategy that holds stocks that are undervalued based on their market price due to certain market inefficiencies.
- Hybrid Portfolio – Hybrid portfolio contains many asset classes, including equities, debt, and other asset classes, depending on the investment objective. This portfolio gives you the benefit of diversification because they invest in a portfolio of different types of assets.
- Portfolio Allocation is also known as Asset Allocation. Here, you strategically plan to distribute the assets of your portfolio based on your financial goals, risk tolerance ability, and time frame of investing.
- The most important thing to do when you build a portfolio is to make sure that you have enough growth opportunities and an optimum risk appetite.
Here are some things you can do to build a strong investment portfolio:
- Allocation Of Assets: The first rule of building a portfolio is to distribute your money between different types of assets like stocks, bonds, government securities, cash, etc.
- Financial Goals: Before you start building your portfolio, make a list of your short, medium, and long-term financial goals.
- Diversification Of Risks: Different assets have different levels of risk, and thus investing in multiple assets can reduce the impact of risk that comes from one type of asset.
FAQ
1. What is the ideal stock portfolio?
Stock Market Investing should not be random investing. You need to build your stock portfolio carefully based on your risk appetite and sector preference.
Thus, there is no such thing as called an ideal stock portfolio. You invest based on your financial goals.
2. How many stocks should I have in my portfolio?
The number of stocks to have in your portfolio depends on your investment strategy.
Here are a few factors you can consider before adding an asset to your portfolio:
- Your risk tolerance capability
- What kind of returns do you expect from your portfolio?
- Research the quality and quantity of stocks you aim to buy
- The time frame of your investments
3. Investment portfolio example
Let’s have a look at Rakesh Jhunjhunwala’s investment portfolio. As you can see, the portfolio is well-diversified with investments in automobiles, pharmaceuticals, real estate, and agricultural stocks.
| Stock | Holding Value in Rs | QTY Held |
| Jubilant Pharnova Ltd. | 517.7 Cr | 10,770,000 |
| Canara Bank | 839.4 Cr | 35,597,400 |
| Indiabulls Housing Finance Ltd. | 96.7 Cr | 6000,000 |
| Anant Raj Ltd. | 58.7 Cr | 10,000,000 |
| Agro Tech Foods Ltd. | 173.6 Cr | 2003,259 |
| Autoline Industries Ltd. | 11.3 Cr | 1,751,233 |
