Have you ever questioned yourself about the low return you got whereas investing in the same investment tool, your friend earned a higher interest? It is a rational feeling. You should accept the fact that every investment comes with a level of risk. It can be high, average, or low.
Guide To Risk Profiling & Investment Planning
It depends on your risk profile assessment how you fare in the long run. Risk profiling is a mandatory process that every aspiring investor must follow. Warren Buffet and other inspirational investors preach that without risk, you cannot reap the benefit from investment plans without a risk assessment. You need to assess your risk profile and make your investment accordingly.
To understand risk profiling and its impact better, let us cite an example of three friends, Ravi, Akash, and Sanjay.
Ravi: He is 25 years old and has recently joined a job. He earns Rs 25000 monthly. He wants to invest rather than save in his savings account which will lie dormant for years. Ravi is quite an inquisitive person who knows quite a lot about investment. He wants to have insurance and invest at the same time.
Akash: He is 28 and already onthe job for the past four to five years. He has a health plan for the remaining years of his life. He is ready to take a risk and invest a higher sum. The only expectation he has is a huge return.
Sanjay: He is 27, the eldest one among his siblings. He has already kept a fixed deposit. Now, he will invest,but he does not want to take the risk for many years. He wants to invest only for ten years.
Based on the three profiles, one investment plan that we can recommend right now is ULIP. It depends on the risk ratio you choose and make the final decision of investing.
What is ULIP?
It is an acronym for Unit Linked Insurance Plan. This plan helps you choose the policy term and the payment term of the premium. You can invest in the balanced fund, secure fund, conservative fund, growth fund, growth super fund, and high growth fund.
The risks that they havevary from very high to very low. Despite the easy route that you can choose by picking ULIP, there are ways to assess your risk profile. Assess it and be sure about other investments too.
1) Your Age
The level of risk you can take depends on your age. The younger you are more is your risk-taking ability.
2) Your Knowledge of Financial Products
Knowledge is the key to taking a riskon investment. If you do not have sound knowledgeof the products of Finance, your ability to take risk diminishes as you will not be confident.
3) Surplus to Invest
Are you one of them who can retain 50 percent of the monthly salary every month as surplus? If yes, you are ready for higher risk. If not, you know the consequence.
4) Duration
Someone who is old and feels that his lifeline is diminishing, his risk profile is a little shaky. He would not want to invest in an instrument that will take longer to mature and provide the benefit. With more time, you defeat the short-term volatility.
5) Objective of Investment
Have you ever asked what your investment objective is? Is it a short-term profit or long-term profit? If the aim is to gain quick profit and not wait for too long, the risk-taking ability is lower.
6) Investment Sustainability
Sustainability is one of the most critical elements for you to know your risk profile. Depending on the investment sustainability, you either have a high-risk profile or a low-risk profile.
Risk, Low Risk or No Risk, what is Your Final Call?
Depending on the above risk profiling strategy, you get a clear picture of where to invest and for how long you should do that.
The aim is to be in profits and not in losses. Risk profiling is the modern yet classic way of determining your suitability in any investment tool, keeping the duration in mind. After all, everyone wants to earn something out of his or her investments. The bigger is the return, happier the person is.
