Skip to main content

A diversified portfolio can lower the impact of geopolitical risk

 


   RISK is a term that has a strong role to play in your investments. Warren Buffet aptly defined risks as 'not knowing what you are doing'. To make life simpler for investors and traders, experts came out with a range of numbers within which a risk is worth taking. Some look at risk-reward ratios to decide on their investment decisions. However, there is one set of risks that is not quantifiable.

   Geopolitical risk is one such key element that investors are always exposed to. Epidemics and natural calamities such as earthquakes and floods can mar the fortunes of a country. This can adversely affect the economic growth of the nation and, in turn, hurt investors. In case of dry spells or heavy rains, an economy such as India, receives lower agricultural output and a large consumer base loses out on the purchasing power front. This impacts production numbers across industries and drags the stock prices down. Countries which are not in a position to meet their foreign obligation also pose a serious risk. A war between two countries or a civil war within a country, such as the one fought in Sri Lanka for decades, also impacts an economy as a whole. With rising integration of global economy, geopolitical risks are important.

   Another example of such unquantifiable risk is political risk, which includes change of government or drastic changes in long-term economic policies of the government. For example, the international community of investors keenly follows the government's commitment to economic reform. For example, since the 90s, successive governments were judged on whether they would continue with the open economic policies. No wonder, we are still drawing huge foreign capital because of successive governments that have pursued the reform agenda. In the past, investors have seen nationalisation of businesses and shift from democratic to dictatorship form of governments hurting their interests. For example, just imagine what will happen if insurance companies or the banks were to be nationalised immediately.


   However, though you can be aware of these risks you can't obtain an insurance cover against them. For example, if you are investing in a mutual fund scheme that invests money abroad, you are exposed to geopolitical risks. But can you do anything about the risk? Well, precious little. The best way to mitigate this risk is to have a diversified portfolio. Also, investors can invest across markets with no or low correlation with each other. For example, Latin American markets have low correlation with Indian markets. The low correlation is an outcome of contrasting nature of these economies. Latin American countries are commodity producers whereas the Indian economy is primarily a consumer of commodities. Investors should restrict their exposure to those countries whose geopolitical scenario they understand.

 


Popular posts from this blog

Mirae Asset Healthcare Fund

Best SIP Funds to Invest Online   Mirae Asset Global Investments (India) has launched Mirae Asset Healthcare Fund. The NFO of the fund will be open from June 11, 2018 to June 25, 2018. Mirae Asset Healthcare Fund is an open-ended equity scheme investing in healthcare and allied sectors. The scheme will invest in Indian equities and equity related securities of companies that are likely to benefit either directly or indirectly from healthcare and allied sectors. The investment strategy of this scheme aims to maintain a concentrated portfolio of 30-40 stocks. Healthcare is a broad secular theme that includes pharma, hospitals, diagnostics, insurance and other allied sectors. The fund will have the flexibility to invest across markets capitalization and style in selecting investment opportunities within this theme. Neelesh Surana and Vrijesh Kasera will manage this fund. In a press release, Swarup Mohanty, CEO, Mirae Asset Global Inves...

How to Decide your asset allocation with Mutual Funds?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) How to Decide your asset allocation ? The funds that base their equity allocation on market valuation have given stable returns in the past. Pick these if you are a buy-and-forget investor. Small investors are often victims of greed and fear. When markets are rising, greed makes the small investor increase his exposure to stocks. And when stocks crash to low levels, fear makes him redeem his investments. But there are a few funds that avoid this risk by continuously changing the asset mix of their portfolios. Their allocation to equity is not based on the fund manager's outlook for the market, but on its valuations. Our top pick is the Franklin Templeton Dynamic PE Ratio Fund, a fund of funds that divides its corpus between two schemes from the same fund house-the...

How to generate a UAN Online

Best SIP Funds Online   In order to make Employees' Provident Fund (EPF) accounts portable, the Employees' Provident Fund Organisation (EPFO) had launched the facility of Universal Account Number (UAN ) in 2014. Having a UAN is now mandatory if you have an EPF account and are contributing to it. So far, you got this number from your employer and every time you changed jobs, you had to furnish this number to the new employer.  However, in order to make it easier for you to get a UAN , and without your employer's intervention, the EPFO now allows you to go online and generate a UAN on your own. This facility can be used by freshers, or new employees, who are joining the workforce as well as by employees who have older EPF accounts but do not have a UAN as yet. As a new employee, you can simply generate a UAN and provide the number to your employer at the time of joining, when you need to fill up forms for your EPF contribution. As per a circula...

Reliance Regular Savings Fund - Debt Option

Reliance Regular Savings Fund - Invest Online     The scheme aims to generate optimal returns consistent with moderate levels of risk. It will invest atleast 65 per cent of its assets in debt instruments with maturity of more than 1 year and the rest in money market instruments (including cash or call money and reverse repo) and debentures with maturity of less than 1 year. The exposure in government securities will generally not exceed 50 percent of the assets. The fund uses a mix of relatively low portfolio duration with active investments in higher-yielding corporate bonds. It does not take aggressive duration calls but tries to improve returns by cherry-picking corporate bonds. This is reflected in the fund's returns matching the category and benchmark for five years - at 8.4 per cent - but lagging behind the category during a raging bull market in bonds in the last one year. The fund has been a consistent but not chart-topping performer in the income category. Despite its ...

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...
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