The fundamental principle of investment is – it must be
planned. There are various products available for investment, we group them into asset classes. There are several examples of asset classes and sub-asset classes such as:
- Infrastructure & Real Estate
For small investors, there are some easier vehicles designed for investment. For example:
- Infrastructure Investment Trusts
When there are so many options to choose from, how can one go about it? The easiest way is to go for a Mutual Fund, where you share their cost and they appoint a fund manager to the job for you. But again, what kind of a mutual fund to select from so many options?
The answers to the above questions require some homework.
The basic step is to
know your risk profile. There is a theory called ‘Risk & Return Trade off’. The more risk you take, the more return you get, either in the positive direction or in the negative. Your risk appetite tells you how much shock you can absorb when your return turns negative.
Your risk profile is the solution to know your expected return. When you know how much return you should expect from your portfolio, you diversify it across various asset classes and hedge your risk. The key is – not to put all the eggs in one basket.
When you invest some money, you should
set your goal. This involves thinking about the purpose of your investment and the timeline left to achieve the goal. Your objective will decide whether you require capital appreciation or regular income from your investment. If you need capital appreciation in the long term, you can choose an option like equity. If your objective is regular income, debt would be your solution. If you have a short term requirement or you need to protect your capital, you should compromise your expected return and go for a safer option like
Government Securities or Gilt.
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