What is portfolio investment?
Portfolio investment is when an investor buys assets for the sole aim of financial gain, without having any involvement in the company’s management or operation.
This is a type of passive investment as the investor does not actively participate in the administration of the company. Foreign portfolio investment is when an investor buys assets in a foreign company.
Where have you heard about portfolio investment?
You may have heard about foreign portfolio investments in particular in economics. This is when an investor makes a financial deposit in a foreign country’s bank or buys stock in the foreign country’s market. This is an example of a ‘portfolio flow’.
What you need to know about portfolio investment...
Portfolio investments can be made into all types of asset. This investment contrasts with direct investment – this is when an investor buys assets with the aim of gaining a controlling hand in the company.
By not getting involved with the company’s management, portfolio investments don’t require as much attention as direct investments and can provide a steady rate of return, although there is still associated risk.