Every time you look at an investment ad or a potential scheme you think of investing in stocks, funds or market. But every time, the lines with an asterisk stating “Investments are subject to market risk” hold you back to think again if you should invest in fixed deposit instead. By investing in any scheme, you are putting your money at play to generate more returns.
You prefer taking calculated risks for your investments to ensure that you are able to generate definite returns from them. However, on the other hand, there are some high-risk investments, which can either give exceptional profits or result into fatal loss. So, the question here is how much risk you want to take and how much risk you can take? To resolve this question, there are some simple aspects you need to consider, when it comes to risk taking.
Measuring the Risk in your Investment
The risk that you can take can be measured according to your risk tolerance. The risk tolerance of an individual is based on the age, attitude, purpose of investment and they react to the volatility of the market. Volatility is the quick rise and fall of the market and to get an idea about volatility of a scheme, you can refer its beta.
Beta value gives you an idea about how the stock would respond to market movement. If the value of Beta is more than one, it means that stock is more volatile (Risk detected!). The lesser the value of Beta lesser is its volatility. For example, a Beta value of 1.5 means, that if the market drops by 1%, the stock undergoes loss of 1.5%.
Secondly if you start investing when you are young, you can afford to take more risks that can yield better long-term returns. Even the purpose of investment determines the nature of risk for any individual. If you are planning to invest for your retirement savings, you cannot afford to take huge risks and risk huge losses in a short term. So, the amount of risk you can take is collectively determined by all these defining parameters.
What does High Risk Investment mean for an Individual
Every market investment involves risk at different levels. No one can specifically measure the risk they are taking while investing. The investments are made for different purposes like investment for retirement, for child’s education or to multiply wealth. Sorting these investments into short and long-term helps understand the risk factor.
Short Term Investments
Short term investments are for achieving immediate goals like fund for vacation, raising money for your college fees, buying a home or a car, etc. To raise immediate funds you can invest in stocks that are not too volatile and have sufficiently higher beta. As the goal is to generate quick cash through investments, depending on the expected return you can divide your investment into schemes of different beta range. Thus, you ensure quick returns along with managing for eventual loss that risky investments could drive.
Long Term Investments
If you have just begun your career and are investing for retirement plan you are investing in a long-term investment plan for higher returns. In these cases, you can invest in high risk schemes (high Beta value) for which the market volatility can smoothen with time and give you high profits. Other safer and smarter investment option for such specific long-term investment is fixed deposits. There’s a fixed lock-in period, and you can access your funds on maturity, or opt for periodic returns.
Fixed deposits are considered to be smart risk-free investment options for long term investment plans. Investments in fixed deposits with reliable NBFCs like Bajaj Finance, ensure that the FD interest rates provide guaranteed returns on your investment. Generally people avoid the option of FDs as they have lower interest rates. However, with Bajaj Finance, you can get a handsome FD interest rate of 7.85% which can even go up to 8.20% for senior citizens.
Hence, categorizing your investments into short-term and long-term ensures that you make an informed decision about the level of risk in your investment. So, take risks based on your investment purpose and risk tolerance capacity.