Risk is the uncertainty in
investment decision. It is a possibility or the potential that one may accrue
financial loss. Risk and return are directly proportional. When return rises
risk also rises and vice versa. This is because an investor would like to have
more return to compensate for the risk undertaken.
Every investment or saving
instrument have different risk and return. They depend on the factors like when
can one withdraw the funds, what return are the instruments providing, how safe
the instruments are or how safe the money will be.
Investments are based on
different risk levels.
Low risk investments
Investors with low risk tolerance
look for low risk investment options. These investors are mostly retirees who
have spent their entire life in earning that money and don’t want to lose that
money at any cost. Hence, they invest in low risk investment. Low risk
investments instruments are also bought by the people who have no or very less
knowledge about the financial instruments.
These low risk investment options
are mostly fixed deposits, Recurring deposit, government saving schemes, etc. These
instruments are those which have no effect of stock exchange.
Medium risk investments
Investors who want higher risk
compared to low risk investors and are ready to take considerable amount of
risk. These instruments are affected by the movements in stock exchange and are
risky. These investments are volatile and they may carry both debt and equity.
These investments are mutual funds.
These are those instruments in
which one can lose the amount invested i.e. principal amount. There are
irregularities in the earnings also. These kind of investors have knowledge of
financial instruments.
High risk investments
High risk investments are bought
by people who are experts or are market-savvy investors. They have deep
understanding about the financial instruments and want huge returns from
investments. These investors also devote a good amount of time in overseeing the
investments and trade investments regularly. These investors know when to
invest and when to take the money out.
The high risk investments options
are shares. Share market has direct impact on these instruments. The timing of
the instruments vary. The returns obtained from these kind of instruments are
huge and mostly the returns can’t be predicted.
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