Portfolio Construction

It is the combination of securities such as stock, bonds and money market instruments. It is the
process diversifying investment into many securities to minimize risk and maximize return.
Portfolio is designed according to the investor's risk tolerance, time frame and investment
objectives. The monetary value of each asset may influence the risk/reward ratio of the portfolio
and is referred to as the asset allocation of the portfolio. The process of blending together the
broad asset classes so as to obtain optimum return with minimum risk is called portfolio
construction.

Approaches in Portfolio construction

Traditional Approach

1. Modern approach