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Portfolio return refers to the gain or loss realized by an investment portfolio containing several types of investments. Portfolio returns seek to meet the stated benchmarks, meaning a diversified portfolio of stock/bond holdings or a mix of the two asset classes. Portfolios aim to deliver returns based on the stated objectives of the investment strategy, as well as the risk tolerance.
Investors typically have one or more types of portfolios in their investments and they seek to achieve a balanced return over time. There are many types of portfolios available to investors right from equities, debt to Balanced Fund consisting of a mix of stocks, Bonds and cash.
Many portfolios will also include international stocks, and some exclusively focus on geographic regions.
For illustration purpose, let’s assume that the returns from the two assets in the portfolio are R0 and R1. Also, assume the weights of the two assets in the portfolio are w0 and w1. Also, note that the sum of the weights of the assets in the portfolio should be 1.
Following method will be followed to see the returns:
RP = w1R1 + w2R2
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For illustration purpose, let’s take an example. Suppose you invest INR 40,000 in asset 1 that produced 10% returns and INR 20,000 in asset 2 that produced 12% returns. The weight of two assets are 40 percent and 20 percent, respectively.
The portfolio returns will be:
RP = 0.4010% + 0.2012% = 6.4 percent