Gauge the Risk in Your Investments
People generally start investing to get more out of their money, thinking mostly of the upside – but they don’t always account for the risks associated with their investments. Similarly, while the internet has many resources highlighting the ‘best performing assets/schemes' etc. there are far fewer sources alerting investors to the associated risks.
Jul 2022
3 mins read
Share:
Assessing the risk of your investments is one of the most critical steps in investing. Accurate risk assessment requires sound knowledge and understanding of the asset class and the market, and the economic dynamics within which the asset operates.
Here’s how you can master risk assessment:
Evaluate the risk of your existing investments
List your investments to ascertain the asset mix, view your exposure pattern, and understand the amount of risk in your portfolio. For example, if you have high exposure to equity, you will need to evaluate your comfort level in case of a downturn in the market.
Downsize your portfolio
Downsizing is an integral and convenient step towards reducing the risk of the portfolio. Identify investments which basis your risk appetite and financial goals, have limited prospects and exit them in phases, within a short timeframe. If you are unsure which ones to hold and which ones to sell, check with your financial advisor.
Cut your losses
Sometimes, a formerly high-performing investment might have left its best days behind it, and might be making losses. If you see an investment which is showing no signs of recovery or revival, you should cut your losses and exit your investment. If you have already lost money, holding on might only make you lose both time and money. Don’t throw good money after bad.
Consult a professional financial advisor to determine yours.
How to optimise your investment planning by managing your risk
It is important to pursue a holistic approach to investment planning, following these seven steps:
- Create an emergency fund:
Keep 6-12 months of household expenses in the bank to meet any emergencies, including temporary job loss etc., Depending on your job security and income stability, you may consider increasing this time period. - Avail health cover and life cover:
See if your employer already provides you with health and life cover. Even if health cover is provided, ascertain whether it is sufficient. Then evaluate your Term cover in conjunction with yours and your family’s financial goals. Compare plans and choose the one that offers maximum benefits at a minimal premium over a longer tenure. - Ascertain your financial goals:
This is the blueprint for your investments over the long term. Write down goals such as children’s education, vacations, house and retirement, and ascertain the corpus and the timeline for each. Remember to factor in the inflation rate while arriving at the corpus. - Align existing investments with your financial goals:
The balance of your investment portfolio should be re-aligned with your financial goals. The difference between your existing corpus and the corpus required can be bridged via systematic investment plans. - Align investment allocation based on your risk profile:
You can assess your risk appetite based on multiple factors, and design a proposed investment mix that will be conducive to your goals and investment personality. - Align future investments with your investment plan:
Remember not to repeat the mistakes of your earlier days, and work in a structured manner – every investment from here on should align with your investment plan. - Monitor, review and re-align as required:
Monitor your investments periodically. Over time, revisit your financial goals and risk assessment to see if there is a need to re-align your investment plans.
Share:
PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
Toll Free Number: 1800 266 7446
Email: care@pgimindia.co.in
This is an Investor Education and Awareness Initiative by PGIM India Mutual Fund.
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
All the Mutual Fund investors have to go through a one-time KYC (Know Your Customers) process. Investor should deal only with the Registered Mutual Funds (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit https://www.pgimindiamf.com/ieid.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY. Read more
The information contained herein is provided by PGIM India Asset Management Private Limited (the AMC)
on the basis of publicly available information, internally developed data and other third-party
sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information,
assure its completeness, or warrant such information will not be changed. The information contained
herein is current as of the date of issuance* (or such earlier date as referenced herein) and is
subject to change without notice. The AMC has no obligation to update any or all of such
information; nor does the AMC make any express or implied warranties or representations
as to its completeness or accuracy. There can be no assurance that any forecast made
herein will be actually realized. These materials do not take into account individual
investor's objectives, needs or circumstances or the suitability of any securities,
financial instruments or investment strategies described herein for particular investor. Hence,
each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard.
The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein.
The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of
the fund based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary.
