What is your RISK PROFILE & RISK TOLERANCE?

12th June 2017
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If you’re planning to invest, you need to know whether you are prepared to risk a large, medium or a very small proportion of your money to invest. How much risk are you willing to take?

Think about risk to invest in two ways:

  1. Your ability or capacity to take risk. This is all about your financial circumstances and goals. If you have more wealth and can invest over longer periods, you may be more able to accept a higher degree of risk.
  2. Your attitude or willingness. This is more of a mental approach. Some people may not be able to sleep at night at the thought that their investment can fall in value rather than rise.

The risk profiles below may help you identify what sort of investor you are.

  1. No risk

Preserving your capital is the most important factor when you consider your savings. This means that you are more likely to restrict your savings (for growth or income needs) to cash deposits, interest bearing savings accounts and similar products that also offer ready access to your money and are covered under a depositor protection scheme.

You understand the effects of inflation on your capital (and any interest received) and how this can reduce the real value of your money over time.

2.     Low risk

The opportunity to achieve reasonable returns (for growth or income needs) is important to you but you wish to invest in a way that aims to preserve more of your capital if markets fall. You may have little or no experience in taking investment risks but accept this may be necessary to achieve returns potentially equivalent to or higher than those available from cash deposits. You understand that this could involve your capital being invested for five years or more with low to medium exposure to stocks and shares and other riskier investments.

You understand that the value of any investments you make will fluctuate and you might get back less (or more) than you invested (at maturity or earlier).

3.    Medium risk

The opportunity to achieve attractive returns (for growth or income needs) is very important to you but you also want to invest in a way that does not expose all of your capital to riskier investments. You have some experience in taking investment risks and accept this is necessary to achieve potential returns much higher than those available from cash deposits. You understand that this could involve your capital being invested for five years or more with medium to medium high exposure to stocks and shares and other riskier investments.

You understand that the value of any investments you make will fluctuate and you might get back less (or more) than you invested (at maturity or earlier).

See our range of Savings Plans

4.    High risk

You are an experienced investor and are prepared to take on very high levels of investment risk that offer the potential to achieve exceptional returns. This opportunity to achieve exceptional returns (for growth or income needs) is a key priority for you – even in circumstances where it might pose a significant risk to some or all of your underlying capital. You understand that a high-risk investment could involve your capital being invested for five years or more with maximum (up to 100%) exposure to stocks and shares and other riskier investments.

You understand that the value of any investments you make will fluctuate and you might get back much less (or much more) than you invested (at maturity or earlier).

See our range of Investment Plans

Types of Risks associated with Investments:

  • Capital security – the risk that the value of the money you have invested will fall, instead of rise.
  • Shortfall risk – the risk that your investment won’t perform well enough to meet a particular target (ex. to pay for school fees or repay a mortgage).
  • Interest rate risk – the risk that you commit to a product paying a fixed return over a fixed period, and interest rates move against you during that period.
  • Inflation risk – the risk that the growth you achieve on the money you invest will be outweighed by inflation, so its purchasing power will diminish over time.
  • Income risk – the risk that your investment won’t perform well enough to generate the income you need (or that the amount of income you take exceeds the growth generated by the money you invested – so your capital shrinks over time).

By Mr. Ranjan Dutt, AVP- Marketing , Bajaj Allianz Life Insurance

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