2. Introduction
Portfolio is a combination of securities
such as bonds stocks and other
instruments. For example if I have
purchased 100 shares of reliance, one
lot of gold and one lot of silver along
with few bonds and debentures, all the
above securities comprise my portfolio.

3. Portfolio construction
The process of blending
together the broad assets
classes so as to obtain
optimum return with
minimum risk called
portfolio construction.
There are two
approaches of portfolio
• Traditional approach
construction
• Modern approach

4. Traditional approach
The
traditional • Determining the
objectives of portfolio
approach
• Selection of securities to
deals with be included in portfolio.
basically
two major
decisions.

5. Normally • Investors constraints are analyzed
this is • On their basis securities are selected
• Risk and return of securities is studied
carried • Try to minimize the risk with more
out in return
• Compromise with the risk factor
four to • Selection of securities with their
weight in portfolio
six steps.

6. Analysis of constraints
(I)Income needs
(a)Need for current income
(b)Need for constant income
(ii) Liquidity
(iii) Safety
(iv) Time horizon
(v) Tax consideration
(vi) Temprament

7. Determination of objective
Current income
Growth income
Capital appreciation
Preservation of capital

8. Selection of portfolio
(i) Objectives and asset mix
(ii) Growth of income and asset mix
(iii) Capital appreciation and asset mix
(iv) Safety of principal and asset mix
(v) Risk and return analysis
(vi) Diversification

9. Modern approach
An example of modern approach is
Markowitz approach. It does not
takes individual needs into
consideration but risk and return
analysis is done to minimize the risk
and maximize the profit or return.
We will discuss it in the next chapter.