What is interior decorating approach to portfolio construction?

Interior Decorating Approach: Interior decorating approach is tailor-made to the investment objectives and constraints of each investor.

(a)   Protective investments: These investments protect the investors against the uncertainties in life. The life insurance policy is a good example of this type of investment opportunity.

(b)   Tax oriented investment: Some investments provide tax incentives to the investors. For example, Public Provident Fund, National Savings Certificates, Real Estate etc.

(c)    Fixed income investment: These investment yield a fixed rate of return on the investments. For example, investment in preference shares, debentures, bank deposits etc.

(d)   Emotional investments: These investments are made for the purpose of emotional security and satisfaction. For example, investment made in house property, jewellery, household appliances, car etc.

(e)    Speculative investments: These investments are made for the purpose of speculation. The motive behind it is to make quick gains out of fluctuations in the market. For example, investment in Currency futures, F&O, Intra-day trade, commodity trading etc.

(f)    Growth investments: These investments are made for the purpose of earning capital gains. These are not made for getting regular income. For example, investment in growth shares, real estates, land, gold etc.

With the help of these varieties of investments, one can attempt to develop a matrix for matching the individual characteristics of specific investments so that a suitable portfolio can be developed for each investor.