6. What is a Portfolio?

A single investment does not make a portfolio. A portfolio comprises of two or more investments which are not similarly affected by various risk factors. If the price of an investment drops because of the influence of a risk, the price of another investment may rise reducing the impact on the total investment. The risk on a portfolio is thus generally lower than the risk on a single investment. The portfolio risk depends on the nature of each investment in the portfolio and the overall impact (favourable or unfavourable) of the various risk factors on each security. A scheme of a mutual fund states the kind of portfolio it seeks to construct. It also states how a set of risk factors is likely to affect such a portfolio.