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A portfolio investment is a passive investment in securities, which entails no active management or control of the issuing company by the investor. The purpose of the investment is solely financial gain. This is in contrast to direct investment, 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 are classified as portfolio investment. These transactions are also referred to as "portfolio flows" and are recorded in the financial account of a country's balance of payments. According to the Institute of International Finance, 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 due to below-expectations performance of one or a few of them.
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- "Sixth Edition of the IMF's Balance of Payments and International Investment Position Manual (BPM6)". IMF. Retrieved 10 July 2014.
- "Portfolio Flows Tracker FAQ". IIF. Retrieved 10 July 2014.