Here are some options for investors willing to take risks for higher returns
Over the past few weeks, optimism has clouded the markets. The Sensex thrilled the investors as it zoomed past the 19,500 mark. It has even propelled the pessimists and risk-averse to have another look at their portfolio. What are the options before an investor who is ready to take risks in these bull market conditions?
There are numerous avenues for the aggressive investor to churn out profits. Investors wait in anticipation of the Sensex and Nifty to blaze past the 20,000 and 6,000 levels respectively. Based on the risk and reward ratio, that is, the ratio of expected returns from an investment to the amount of risk taken to get these returns, an investor can ponder over some alternatives.
Sector funds
Sometimes referred to as thematic funds, sector funds are mutual funds that have restricted focus on a particular industry or sector in the economy. Well-researched and chosen sectors, with a strong growth potential, yield substantial returns. However, in case these sectors go out of favour the loss incurred could be tremendous.
Risk-averse investors must keep away from these volatile funds and look at diversified or balanced funds instead.
The banking sector has not disappointed the investor over the past two years. So also the automobile sector that has gained steam since the domestic economy recovered. The agriculture and associated industries are languishing. Investors in heathcare, FMCG and construction too have little to cheer about.
Investors can either put their money in sector funds or invest directly in the equity markets in the sectors that they consider are faring well in the current bull run.
Contrarian picks
A contrarian investor looks critically at the crowd behavior that he perceives are wrong investment choices. Contrarian investing is explored when the entire market is on an upswing or is falling down. A contrarian buys or sells stocks when most investors appear to be doing the opposite.
There is tremendous risk involved in researching and picking up battered stocks that have high intrinsic value. A contrarian investor scouts for under-valued stocks that are over-looked by the crowd. Since he keeps away from over-heated or hyped markets chased by the crowd, he is safe from the detrimental scenario of markets faring against expectations.
This strategy demands extensive fundamental study and stock research as the investor is not working in tandem with other investors.
Building an aggressive portfolio
The investor adopts a portfolio management and asset allocation strategy that tries to maximise returns. Such an aggressive investment strategy attempts to beat the overall market performance at an additional risk. The portfolio of a risk-taking investor has a substantial exposure to equity and very limited investments in safer debt instruments.
Aggressive growth funds aim for high capital gains from its selection of investments in companies that exhibit high growth potential. These funds are volatile and are for investors who seek high risk-returns. They have proven to fare well during economic upswings and growth periods.
