Abstract
The study examines the monthly stock prices of 45 SENSEX companies for the period ranging from February 2002 to January 2012. Also the study includes the Indian G-SEC long term bonds with maturities ranging from 15 to 25 years. The set of all efficient portfolios is called the efficient frontier. All risk-averse investors who act to maximize expected utility have an optimal portfolio on this frontier. Based on the risk-aversion factor and the investment time horizon of each individual investor, an attempt is being made to select the optimal portfolio for that particular investor. Given a utility function for an individual investor, the portfolio optimization problem is to find the indifference curve which is tangent to the efficient frontier. The optimal portfolio for the investor lies at the point of tangency between the efficient frontier and the indifference curve. The findings of the study bring out the importance of the investor‟s time horizon and the risk-aversion factor in portfolio optimisation.
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