DIVERSIFICATION APPLICATIONS IN PORTFOLIO MANAGEMENT

INTRODUCTION: An investment is a sacrifice of current money or other resources for future benefits. Numerous avenues of investment are available today. The two key aspects of any investment are time and risk. Very broadly, the investment process consists of two tasks. The first task is security analysis which focuses on assessing the risk and return characteristics of the available investment alternatives. The second task is portfolio selection which involves choosing the best possible portfolio from the set of feasible portfolios.

Construction of portfolio is only part of the battle. Once it is built, the portfolio needs to be maintained. The market values, needs of the beneficiary, and relative merits of the portfolio components can change over time. The portfolio manager must react to these changes. Portfolio management usually requires periodic revision of the portfolio in accordance with a predetermined strategy.

The type of sampling technique used is Simple Random Sampling wherein a questionnaire was prepared and distributed to the retail investors. The investor’s profile is based on the results of a questionnaire that the Investors completed. The Sample consists of 50 retail investors from various backgrounds. The target customers were only the retail investors who invest in various avenues so as to know about their knowledge and concern regarding the economy, principal invested, investment options, market conditions etc.

According to the opinion of these investors interpretation has been done and there has been findings and conclusion along with some recommendations.

HYPOTHESIS STATEMENT

A hypothesis is a proposed explanation for an observable phenomenon. The term derives from the Greek word – hypotithenai meaning “to put under” or “to suppose”.

For the present study it is proposed to have following hypothesis:

Null Hypothesis:

Most of the investors prefer return as their investment criteria rather than risk, liquidity and safety of principal etc.

Alternate Hypothesis:

Most of the investors don’t prefer return as their investment criteria rather go for either risk or liquidity or safety of principal etc.

REVIEW OF LITERATURE

PORTFOLIO

A portfolio is an appropriate mix of or collection of investments held by an institution or a private individual. It is a collection of securities, since it is rarely desirable to invest the entire funds of an individual or an institution in a single security.

Portfolio analysis considers the determination of future risk and return in holding various blends of individual securities.

Portfolio expected return is a weighted average of the expected return of individual securities but portfolio variance, in short contrast, can be something less than a weighted average of security variances.
As a result an investor can sometimes reduce portfolio risk by adding security with greater individual risk than any other security in the portfolio. This is because risk depends greatly on the co-variance among return of individual securities.

Since portfolios expected return is a weighted average of the expected return of its securities, the contribution of each security to the portfolio’s expected returns depends on its expected returns and its proportionate share of the initial portfolio’s market value.

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