Skip to main content

What is your risk profile?

A person's risk profile is a combination of his attitude towards asset classes and his investment tenure and objectives

The risk profile of an investor is difficult to gauge because it oscillates with market moods. When the market is on the rise, even the most risk-averse start buying stocks. A sharp correction leads to panic selling, even by risk-takers.

No wonder, the first thing a financial planner wants to know is his client's risk profile. It helps him direct investments. A person's risk profile is a combination of his attitude towards asset classes and his investment tenure and objectives.

Many wealth management companies use psychometric testing. "These tests could be a starting point. But risk profile cannot be mapped without considering the investible amount and the tenure of investments," said Sumeet Vaid, a certified financial planner.

An investor is given a set of questions with four options. Each answer has points and the sum total defines the risk profile. The person is then defined as conservative, moderate or aggressive. Some use five categories very conservative, conservative, moderate, aggressive and very aggressive.

While there are a large number of wealth management companies and websites that can help you gauge your risk profile, here's some help if you wish to do it on your own.

STEP 1

Investment horizon: Whether it is equity, debt, gold or property, you need to take acall on the tenure and accordingly choose the asset class.

STEP2

What is your investment goal? The goal has to be matched with the investment horizon. For instance, if you wish to purchase a car in the next three years, investing in equities is the best option. However, if you want to buy a flat in six months, you may have to compromise on returns to ensure there is no erosion of capital. In such circumstances, afixed deposit is ideal.

Let's assume you are saving for retirement. The first obvious question is to ask how much money do you need to maintain a decent lifestyle. And remember, 15-20 years later, when you retire, inflation would have reduced the value of your savings significantly.

Say you want to retire 20 years later with Rs 1 crore. If you invest in equities, you can achieve the target by saving Rs 10,000 every month for the next 20 years, assuming an annual rate of return of 12 per cent.

But if you opt for a fixed deposit at 8 per cent, the monthly saving has to increase to Rs 16,900. Also, equity returns will be tax-free whereas returns from debt funds will be added to your income and taxed accordingly.

If the investment horizon is between three years and five years, investing in equity for the first three years and then shifting to debt slowly can help get decent returns. That is, a young person wishing to get married and buy a property and a car needs to be aggressive in the first few years.

For investment goals of less than three years, debt is ideal. One could take the route of fixed deposits or short- and medium-term debt funds. However, if you want to make money aggressively, investing in good balanced funds can shore up returns. This is because they invest a part of their money in equities, which increases returns. Such investment goals are typically related to purchasing a car or planning a holiday.

For ones who are unsure about investing in equities, it's best to start with exchange-traded funds (ETFs) that have Nifty or Sensex as the underlying index. This will ensure that investments are in large-cap companies. ETFs are the least volatile among pure equity products. They also give returns on at par with stock market indices

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

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 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...

Tax on Kisan Vikas Patra Returns

  Taxation of Kisan Vikas Patra The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemption   The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemptions. The interest earned from it is taxed as per the Income Tax slab applicable to the investor on redemption. That means an investor in the highest tax slab will pay 30 per cent tax on the returns from KVP . Also, 10 per cent of the interest earned would be deducted as tax deducted at source (TDS). ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fu...
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