This research aims at constructing an optimal portfolio that maximizes the overall return andminimizes the risk associated with the individual stocks using the Sharpe Single Index Model. The studyincludes 25 stocks from five different sectors. Only the secondary data for the past five years (2007-08 to2011-2012) are used in the study. The final portfolio thus constructed includes stocks from more than onesector. Thus even if some of the sectors do not perform well as expected, it will be compensated by the excessreturns from the other sectors that exceed the expectation. This is how risk is diversified .This method ofconstruction of optimal portfolio is very effective and convenient as revision of the optimal portfolio can be anongoing exercise. The existence of a cut-off rate (Ci) is also extremely useful because most new stocks thathave an excess return-to beta ratio above the cut-off rate (Ci) can be included in the optimal portfolio. Thusthis study helps the investors to minimize risk and maximize the return on their investment.