Skip to main content

RISK PROFILING OF INVESTORS

 
 


IF AN INVESTOR CAN MEASURE RISKS TO HIS INVESTMENTS, HE COULD MITIGATE MOST OF THOSE RISKS
 
Investments of every type carry some element of risk. However, the ability to take risks varies from investor to investor. There are several factors that determine the risk-taking ability of a person. These factors include the investor's age, his income level, the number of people financially dependent on the investor, his networth, how strong the investor is mentally in witnessing unrealized losses in his portfolio etc.

Since these factors differ from investor to investor, it is observed that different people are comfortable with different levels of risk. For example, while some people can keep cool even when the market prices of stocks they have bought falls below their purchase price, there are several others who get jittery whenever such a thing happens.

It is important for every investor to find out the risk tolerance level because often while setting financial goals, investors either over-estimate or under-estimate their risk taking ability. However, the portfolio construct for every investor needs to be mapped to their risk tolerance level.Financial planners say at times it is seen that the goals for an investor are aggressive while he does not have the required risk appetite to have an aggressive portfolio. In such situations it is important to temper down the goals so that as risks are lowered, the financial goals, measured in terms of target portfolio amount, are also reduced. They also say that if the risk taking ability of an investor is measured correctly, it becomes easier to construct his portfolio to meet his financial goals. 

At the initial stage he asks clients two basic questions:

  1. Which goal do you need this money for?
  2. For how long can you forget this money?

The three factors that determine how much risk an investor can take:

  • Stability of in come,
  • liquidity requirements and
  • willingness to take risk.

If an investor's income is stable where the state of the economy doesn't affect his income, he could take some additional risks. So, a teacher is in a better position to take some risks than a person having income linked to the company he works for. One of the traits that determine the liquidity requirement of a person is if he does not have an emergency fund, and wants his investments to be such that he could withdraw money anytime he wants, then the person is quite risk averse. About the willingness factor, Beriwala says that if a person wants to multi ply his savings and can afford to see capital depletions for a few years, then he is willing to take risk.

To find out the risk tak ing ability of an investor, industry players depend on various types of tests that have a mix of subjective as well as objective questions, the ones which test situational reaction of an investor to probable gains or losses in his in vestments etc. Through these questions financial planners try to measure the risk taking ability of the investor to reach his financial goals and whether to suggest an aggressive or conservative investment portfolio for him.

According to industry players usually each investor is given a questionnaire to answer. It intends to capture personal information of the investor in order to integrate the existing investments of the person into his overall financial plan. The questionnaire also helps the financial planner to have some idea about the investor's investment horizon. Then his investor's risk taking ability is checked through questions relating to probable events in which he would need to get the invested money back. The questionnaire also aims to gauge the investor's awareness about various types of risks related to investments and also measures his aspirations in life that requires spending money. Finally, there are questions that try to elicit the client's intensity for loss aversion, financial planners said.

As a prospective investor who wants to put in place a financial plan, he should be ready with some basic information about him and his family. These include age of each of the family member, annual income, the number of earning member and dependents, the bank account details, investments already made, some idea about monthly expenses etc

Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

Invest in Tax Saver Mutual Funds Online -

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

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

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

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

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
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