Updated on March 16, 2023
An investment plan or portfolio in which the liabilities are matched with equivalent cash flows is called Dedicated Portfolio. Dedicated Portfolio generally consists of sound fixed- income investments which generate regular cash-flows. Fixed Income securities like bonds are accumulated and held till maturity. The interests and maturity is matched as per payment/cash needs over the specific period. The funds or debt paper used is of good credit quality and takes into account the risk, stability of returns and protection of capital.
What are the benefits of Dedicated Portfolio?
Advantages of a Dedicated Portfolio are:
1. Stable and cash generating at regular intervals/timelines.
2. Proper risk management strategy helps to prevent three essential risks-inflation risk, liquidity risk and market risk.
What are the drawbacks of Dedicated Portfolio?
Limitations of Dedicated Portfolio are:
1. It is not easy to calculate future cash flows mathematically for everyone.
2. It limits the portfolio and the expected returns as it might otherwise fetch by utilising other investment products.
3. Investment choices available are quite limited.