Strategies Of Portfolio Management

Foreign Institutional Investment means investment made by foreign institutions such as pension fund, mutual funds, investment trust, Assets Management companies and other specified institutions, in the securities traded on the domestic primary and secondary market. In the case of India, securities include shares, debentures, warrants other schemes floated by domestic mutual funds and other securities specified by the government of India from time to time. These are regarded as portfolio investment from point of view of FIIs since they do not grant them any managerial control. Although Government of India treats investments in foreign currency convertible bonds and global depository receipt underlying by FIIs direct investment, there are portfolio investment from the point of view of FIIs. These institutions investors make such investment not with a purpose of acquiring any managerial control over Indian companies but with the object of securing portfolio diversification. If investments are made with the object of acquiring managerial control, they are treated as foreign direct investments. Portfolio Investment, that is investment made in securities of different companies and in different countries is made to diversify the portfolio of investment to secure higher returns at the same time minimizing risks.  The investment made by foreign institutional investors thus becomes portfolio investment. The investors make investment in securities of different companies in the same country and indifferent countries; they thus diversify their securities portfolio. Investment no doubt brings returns. But there are risks associated with every investment. Prudent investors know that diversifying their investment across industries leads to lower level of risk for a given level of expected return. It is a well known proposition in portfolio theory that whenever there is an imperfect correlation between return risk is reduced by maintaining only a portion of wealth in any security when securities/assets available for investment are expanding an investors or can achieve a maximum return for given risk or minimum risk for a given expected portfolio return. The benefit of international diversification will increase if the securities portfolio covers not only equities but also bonds.