Each investment product has a different risk profile that must be taken into account before making an investment decision. Just as it is important to understand your risk appetite, it is equally important to understand the investment objective and risk profile of the scheme you are going to invest in.
If you are young and want to give an aggressive approach to your investment portfolio, you can consider investing in mutual funds.
mutual funds
As such an equity fund is a pool of professionally managed funds that invest in companies by market capitalization. Some mutual funds like gold funds invest in gold ETFs or other gold funds (Funds of Funds). Liquid funds like debt funds invest in fixed income securities that generate regular income.
Depending on the nature of the scheme, its risk profile, asset allocation strategy and investment objective, a mutual fund can invest in global and international economies. Apart from this, it can also invest in money market instruments like G-secs, corporate bonds, treasury bills, commercial papers, company fixed deposits, etc. Mutual fund investors are allotted units in quantity along with the investment amount and based on the fund’s current NAV (Net Asset Value). The performance of a mutual fund scheme depends on its underlying assets and the performance of the various sectors and industries in which it invests.
What is risk appetite?
The risk appetite is nothing but the ability of an individual to take risks with their finances in the hope of earning higher returns through these investments in the near future. It is impossible to earn some capital appreciation without taking risks. One should invest only that amount in mutual funds which they can afford to lose. Investing in excess of the risk appetite can prove fatal to an individual’s investment portfolio. Especially if you are investing in equity funds, where your entire investment portfolio is exposed to the volatile nature of the market, there is a good chance that your portfolio will suffer losses.
Determine your risk appetite before investing
Mutual fund investments do not guarantee capital growth. In the short term, one may also face losses. Mutual fund schemes are known to outperform other investment schemes in the long run. However, since returns are not guaranteed, investors should understand their risk appetite before investing. The primary objective of investing in schemes like mutual funds is to create long-term wealth. and the main factors of wealth creation in investments as per their risk appetite.
The risk appetite of an individual plays an important role in diversifying his/her mutual fund portfolio. For example, investors with moderate risk appetite may want to invest more in debt and less in equities. High risk takers can consider schemes like Balanced Funds. And investors with high risk appetite may want to invest in
equity fund
Like small cap global funds. There are thousands of mutual fund schemes to choose from, but it is essential to understand your appetite for risk before investing.
If you are new to mutual funds or financial planning, please seek professional advice before making an investment decision.