Factors affecting Investment Decisions in Portfolio Management
(i) Objectives of investment portfolio: There can be many objectives of making an investment. The manager of a provident fund portfolio has to look for security (low risk) and may be satisfied with none too higher return. An aggressive investment company
may, however, be willing to take a high risk in order to have high capital appreciation.
(ii) Selection of investment
(a) What types of securities to buy or invest in? There is a wide variety of investments opportunities available i.e. debentures, convertible bonds, preference shares, equity shares, government securities and bonds, income units, capital units etc.
(b) What should be the proportion of investment in fixed interest/dividend securities and variable interest/dividend bearing securities?
(c) In case investments are to be made in the shares or debentures of companies, which particular industries show potential of growth?
(d) Once industries with high growth potential have been identified, the next step is to select the particular companies, in whose shares or securities investments are to be made.
(iii) Timing of purchase: At what price the share is acquired for the portfolio depends entirely on the timing decision. It is obvious if a person wishes to make any gains, he should “buy cheap and sell dear” i.e. buy when the shares are selling at a low price and
sell when they are at a high price.