Everyone wants to get rich! Yes, that is the truth! However, everyone also knows there is always risk involved and money loss too can happen. However, there is some good news for investors. Here is a chance to make money and that too in a safe way! Amazing, but you can get rich without getting into risky territory where you may lose your money or substantial amounts of it.
After the PMC Bank crisis, it has become evident that your bank deposits beyond Rs 1 lakh are not insured. Yes, the rest of your money, if it disappears from your bank account, will mean you will not get it back. Keeping this in mind, wealth managers have started to advise investors to go for investment rather than keeping one’s money in one’s bank account. By doing this, an investor not only ensures a better profit on investment, but he or she can also further safeguard their hard-earned money through investments in the various asset classes. According to wealth managers, a mutual fund is a much better option if someone is looking for an investment tool.
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However, which mutual fund to choose? Experts are of the opinion that an investor’s investment should be in sync with his or her risk appetite. If an investor’s risk appetite is moderate one should go for the equity mutual funds while those who have a low-risk appetite, should go for debt mutual fund.
Speaking on the risk appetite in investment, Firoz Aziz, Deputy CEO at Anand Rathi Wealth Management said that every investment has some risk factor in it. He said, “Diversification of the portfolio is a must. In the equity investment, there is market volatility and credit risk involved while in debt mutual funds there is default and interest rate risk involved.” Aziz advised investors to first assess one’s risk appetite and then decide the investment tool.
He said that diversification of one’s investment in different asset classes helps pare the losses in one asset by income in other asset class. He explained, “Diversification in equity mutual funds help an investor minimise the risk factor involved in mutual fund investments. One should invest in both debt and equity mutual funds as the equity mutual funds give better returns in a long-term perspective while debt mutual fund will work as a shock absorber in one’s portfolio.” He said that the PMC Bank crisis is an exceptional case and investment in banks is still safe but its return is very low in comparison to the mutual funds. So, one should not invest in banks beyond a certain limit.
Highlighting the risk factor in mutual fund investment Firoz Aziz said, “In mutual funds, probability of default is very low as the mutual fund houses invest in 50-60 stocks, which itself is diversification of the fund. Since you already have diversified your portfolio by investing in 8-10 asset class, chances of default further go down.”