Portfolio investments are

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing is ...

s in the form of a group (portfolio) of assets, including transactions in

equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

, such as

common stock Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Comm ...

, and

debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...

securities, such as

banknotes A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes were originally issued ...

, bonds, and

debentures In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term "debenture" originally referred to a document that either creates a debt or acknowle ...

. Portfolio investments are

passive investment Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index or portfolio. Passive management is most common on the equity market, where index funds track a stock market index, but it is becoming ...

s, as they do not entail active

management Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business. Management includes the activitie ...

or control of the issuing company. The foreign investors have a relatively short-term interest in the ownership of these passive investments such as bonds and stocks. Rather, the purpose of the investment is solely financial gain, in contrast to

foreign direct investment A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct c ...

(FDI), which allows an investor to exercise a certain degree of managerial control over a company. For international transactions, equity investments where the owner holds less than 10% of a company's

shares In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of ...

are classified as portfolio investments. These transactions are also referred to as "portfolio flows" and are recorded in the

financial account In macroeconomics and international finance, the capital account, also known as the capital and financial account records the net flow of investment transaction into an economy. It is one of the two primary components of the balance of payments, ...

of a country's

balance of payments In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., ...

. They are categorized in two major parts: foreign institutional investment and investments by non-residents. According to the

Institute of International Finances An institute is an organisational body created for a certain purpose. They are often research organisations (research institutes) created to do research on specific topics, or can also be a professional body. In some countries, institutes can ...

, portfolio flows arise through the transfer of ownership of securities from one country to another. Portfolio investment covers a range of securities, such as stocks and bonds, as well as other types of investment vehicles. A diversified portfolio helps spread the risk of possible loss because of below-expectations performance of one or a few of them.

References

Investment {{investment-stub