Skip to main content

Manage your Investment risk

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)
 

 


The challenge is to ensure you stay invested long enough to get returns commensurate to risk

 

All investments carry risk. They have to be identified and steps must be taken to minimise them. If the investment is overtly risky, it might lead to complete loss of capital.

Let us look at some risks applicable to investments:

Liquidity risk: An investment is said to be liquid if it can be quickly converted into cash. A liquidity risk refers to the possibility of the investor being unable to realise the value of the investment when required. This may happen because the security cannot be sold in the market or is prematurely terminated or because the resultant loss in value is huge.

Purchasing- power risk:

When prices shoot up, the purchasing power of your money plunges. Relatively safer fixedincome investments such as bank deposits and small- savings instruments are more prone to inflation risk because rising prices erode the purchasing power of your capital.

Gold is the biggest hedge against inflation ( or purchasingpower) risk.

Interest- rate risk:

Fluctuating interest rates are a common phenomenon with the ensuing impact on investment values and yields. The interest- rate risk affects fixedincome securities and refers to the risk of a change in the value of your investment as a result of movements in interest rates. If you have invested for three years in an instrument yielding 8 per cent annually and interest rates move up to 9 per cent, one year in a similar instrument may offer 9 per cent. But because of the lower yield of the earlier instrument, the value of your security is reduced. The interest- rate risk plagues debt mutual funds. With bonds, the price of a bond is inverse to interest- rate changes. So if the interest rate moves up, bond prices slide, resulting in the lower Net Asset Value of debt funds.

Market risk: Market risk constitutes the risk of movement in prices of securities due to factors that affect the market as a whole. Market forces determine the price of a security based on demand and supply. In a bearish market because of limited demand, prices of blue chips too are subdued. Similarly, in a bullish market, penny stocks register an upward price trend.

Default risk: This risk refers to non- payment of interest – or both the principal and the interest. With unsecured instruments, this risk is great. Since there is no underlying security, one can do nothing except take legal recourse. So one needs to look at credit ratings of a company before investing in company deposits or debentures.

Business risk: When you invest money in business enterprises, there is a possibility of that business failing.

In which case, you may get nothing, or very little on a prorata basis. This risk is mostly faced by business enterprises. Hence, such enterprises generally or typically command high returns.

Political risk: Political risk could be due to policy changes, government instability, international events, etc. It is external to any business and is rather difficult to mitigate. For instance, the threat of war causes panic in financial markets.

Exchange rate risk: This is mainly for companies that have exposure abroad ( have to make payments in foreign currencies).

Any changes in the foreign- exchange rates bear on profitability. India is now faced with a high degree of volatility in forex.

How to manage risks:

Not all these risks may be applicable simultaneously to any single investment. Nevertheless, often the various kinds of risks are interlinked.

Thus, investment in a company that faces high business risk automatically has a higher liquidity risk than a similar investment in other companies with a lower degree of business risk.

As seen from the table, equity carries the highest risk. As a result, it offers the possibility of higher returns.

Traditional instruments ( bank fixed deposits and gold) are less risky overall.

Investment in post- office deposits and government bonds are risk- free as they have the sovereign guarantee. Bank FDs and bonds and debentures carry lower risks on many counts but are subject to purchasing- power or inflation risks.

Gold, however, is affected by exchange rate risk. Real estate has the highest liquidity risk.

Where risk is great, returns can be expected to be high. Hence, manage your investments to achieve the right balance between risk and return.

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...
Read more

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...
Read more

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...
Read more

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...
Read more

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now