Unless you think of what needs will investments fulfil, it is not possible to choose the right kind of investments

Our insistence on investors having distinct portfolios for distinct goals actually arises from the desirability of thinking of your investments in terms of distinct financial goals.

As far as the bare meaning of the term goes, any collection of investments can be called a portfolio. In fact, the investments made by a mutual fund are also referred to as the portfolio of the fund. The important question is what use do you put to your portfolio.

If you want to meet specific financial goals, then each portfolio will need to be different and driven by a different time frame, risk and return level. If you think of specific financial targets and think of the money needed for them, then you will be able to answer questions about risk and returns precisely. For example, you'll need money for your daughter's higher education after three years. You'd like to buy a house at least ten years before retirement. You'd like to go on a vacation to Europe after two years. You'd like Rs 2 lakh to always be available for emergencies.

Each of these goals is very precise. The risk you can take with it, as well as the amount of money needed can be quantified quite precisely. In the Value Research way of thinking, there is no concept of an individual's portfolio. Instead each individual must have many portfolios, one for each financial goal. Only then can you tune each portfolio's level of conservativeness or aggressiveness to the right level.

A portfolio is not simply a collection. It has different parts that fit together in specific roles and complement each other. There could be three funds, of which one provides gains and two stability. It's only from a legal or taxation perspective that one needs to consider all the investments owned by an individual to be part of a single portfolio.