Which of the following is an advantage of direct investment?

• A. Lower risk compared to portfolio investment
• B. Minimal capital requirements
• C. Immediate liquidity of assets
• D. Greater control over business operations

Answer: (D)

Verified step by step guidance

1. Understand the concept of direct investment: it involves acquiring a significant ownership stake in a company, often giving the investor control over business operations.
2. Compare direct investment with portfolio investment: portfolio investment typically involves buying stocks or bonds without control over the company, while direct investment allows for active management and decision-making.
3. Evaluate the options given: 'Lower risk compared to portfolio investment' is generally incorrect because direct investment often carries higher risk due to larger capital commitment and exposure to business-specific risks.
4. 'Minimal capital requirements' is not an advantage of direct investment since it usually requires substantial capital to gain control.
5. 'Immediate liquidity of assets' is also not typical for direct investment because such investments are less liquid compared to portfolio investments; the key advantage is indeed 'Greater control over business operations.'