Aditya Birla Sun Life Insurance Company Limited

Portfolio Meaning

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Definition:

A portfolio is a collection of an individual's financial assets or investment tools. The investment instruments include stocks, bonds, cash, commodities, and mutual funds.

Description:

Finances always matter in life. People invest money to multiply it, gain returns and fulfil their future financial needs. Some of the investment tools give you an opportunity to make investment and generate returns. These tools are influenced by the market operations.

When you invest money in more than one instrument, you happen to create a diversified portfolio. Some of the financial tools for investment include ULIP, real estate, SIP, etc. The return on investment from each of these tools vary. Depending on the requirement and the future goals, individuals think of creating a diversified portfolio.

Diversification is a crucial concept when it comes to portfolio management. A portfolio reflects the individual's tolerance of risk, period, return objectives, liquidity needs, individual life goals, and tax requirements.The following are the common types of portfolio:

Hybrid Portfolio: A hybrid portfolio involves a fixed percentage of investment in stocks, bonds, and other classes of assets.
Aggressive Portfolio: Aggressive Portfolio is for those looking for high returns and investing in companies in the early stage of growth.
Defensive Portfolio: Defensive Portfolio is for those who invest in making stable returns. They invest in instruments that are resistant to downturns.
Income Focussed Portfolio: In this type of Portfolio, the investors make money from dividend-paying stocks.
Income Speculative Portfolio: Speculative Portfolio is for those with high tolerance toward risk. Any individual can take care of their Portfolio themselves or can appoint a financial advisor to handle it.

Example:

Amit was an aggressive investor, so he purchased a ULIP to diversify his portfolio. He already owned a net asset worth Rs.20 lakhs in stocks, bonds, and mutual funds. But he wanted a ULIP as the policy would provide him good returns as well as life cover. The ULIP plan offered him a life cover of Rs.5 lakhs, and the returns expected under the plan were Rs.35 lakhs after 10 years. His decision to invest in ULIP strengthened his Portfolio and offered a financial security to his loved ones.