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Play safe, factor in the risks

THE STOCK markets are known for their roller coaster rides. If you take a very short?term view of the investments, then you might have factored in (thought of) the risk factors associated with the market. Long-term investors need to compare all the equity and debt-market products to choose the best among them, which suits their budget and risk appetite.

india Updated: Jun 04, 2006 10:31 IST

THE STOCK markets are known for their roller coaster rides. If you take a very short–term view of the investments, then you might have factored in (thought of) the risk factors associated with the market. Long-term investors need to compare all the equity and debt-market products to choose the best among them, which suits their budget and risk appetite.

The foremost thing to keep in mind is the portfolio you have built over the years to create a comfortable nest for your future financial requirements. For example, an equity scheme, which invests in large cap companies, could be safer than one that invests in mid or small-cap companies. On the other hand, a portfolio for debt instruments is determined on duration of securities, which could bring stable returns. In any market, a high-return investment is potentially volatile and risky, while a short duration investment portfolio is less risky.

In today’s volatile markets, equity investments that generate meaningful post tax; post inflation returns, have risks attached to them. The risk could be a credit risk, government policy risk or market risk to name a few. The key to successful investing is to understand the risks before investing. The thumb rule remains that the more risk one is willing to take, the better the returns’ potential.

Any current good performance of a mutual fund does not necessarily mean it would continue to ensure good returns as they are also governed by market dynamics.

It is also very important to look at investment horizons based on what kind of returns one expects from his or her investments during the next 3 years. It is always prudent to invest money with a good fund house having a sound track record. A good way to analyse the fund house would be to check the performance of all its products during the past two years. A little amount of hard work can save you from anxieties in future, as investing in the market also needs a little research.