Define Investment Strategy based on your Risk profile

We hope you now have clarity on your risk tolerance, goals and types of assets. There are majorly three type of investors based on risk profile. Every type of risk profile requires specific custom diversified asset allocation . Before we dive into that, let us walk you through major types of assets.

Types of assets:

All investment avenues will fall under the following types of assets

Fixed Income / Debt:All assets that offer you a very fixed income unless with absolute certainty. Securities like Bonds, Corporate FDs, treasury bonds, bond and debt linked mutual funds etc. Basically, all assets that offer guaranteed capital protection and minimal return on investment.

Equity: Investment on open equity market in any size shape and form. This also includes equity linked mutual funds and direct stocks.

Gold: One of the natural hedges against market fluctuations. Gone are the days when gold was a status symbol. Today, most commonly used hedge medium is gold. Avoid considering jewels as investment (more than 20% of its value is lost on overheads.) Try investing on the paper gold like ETFs, Gold bonds and gold bees

Gold Bullion
Gold offers an interesting investment opportunity as it doubles up as hedging against equity

Cash and Cash equivalent:Any medium of liquid assets that can be converted into cash within seconds. Investments in liquid mutual funds, FD / RD, cash in savings account can all be considered.

The most important thing to note here is before asset allocation, have an emergency fund locked up. This fund is exclusively up to an individual’s current standing. Our recommendation is to save up so much that you can survive 6 months without a single penny coming in to your account from any source of income. You can park this in any liquid funds or in savings account to gain marginal interest while maintaining liquidity.

Conservative risk profile:

Main motive of the investors with this risk profile should focus on assured returns guaranteed with capital protection. Plan higher allocation to low risk fixed income securities like debts, bonds etc. “Capital Preservation” is the aim.

Asset Allocation - Conservative
Asset Allocation – Conservative

However, it is still important to link some percentage of your money to inflation and so do not ignore minimal exposure to equity. Invest in trusted high quality blue chip and large cap companies.

Moderate risk profile:

Also known as balanced profile. As the name suggests the focus is to balance assurance of fixed income and cash with riskier market linked options like equity and gold.  Capital growth and preservation are equally important.

Asset Allocation - Moderate
Asset Allocation – Moderate

Further the balance equity investment is between high quality leading large cap companies and up and coming good mid cap stocks with growth potential. The target should be to beat the inflation.

Aggressive risk profile:

The aim of aggressive investor must be to maximize capital appreciation of an investment portfolio over the long term through an asset allocation geared to securities with high-expected returns.

Asset Allocation - Aggressive
Asset Allocation – Aggressive

Majority of the investment must be towards high growth oriented equities with minor diversification towards bonds and gold. This is best suited when you have a long timeframe in mind.

Real Estate investment
Real Estate investment are one other avenue

Fair warning to you, all these are nothing but a thumb rule of allocation. You can always make a few customization to suit your need. But, if you can maintain stay somewhat in the same bucket you can achieve your goal.

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