The game of monopoly has taught some lesson on how to take the risk. Check before you leap with this do-list
- Diversify your returns
- Hedge your risk
- Know your risk
- Diversify your returns: Please remember that not all your funds or investment can be always up with high returns. This would mean there is no portfolio diversity. If you have an Equity fund that gives 30% pa and next to that you have a short-term fund sitting with 8% pa, you are always compelled to move it the equity fund to fetch that high return. In a normal situation, it will look that you did a wise decision to move. But if markets turn upside down then all investment turn negative no time and the low return which otherwise would not have taken a hit is also bad because we have moved it to equity. So keep the returns diversified. If large-cap gives lesser returns than midcap or small cap so be it. Don’t shuffle it to make it risky
- Hedge your risk: There are 3 ways to achieve this.
- Your portfolio should have some diversity to include some dynamic asset allocation to help hedge against such market volatility.
- Funds that take active hedge against the existing portfolio using the nifty futures can be a choice. These funds can help tide over the difficult times.
- Build a natural hedge in the portfolio by choosing funds that have inverse correlation so as to get some protection.
- Know your risk: Risk is an unspoken word in Indian investor parlance. Unlike our western counterpart who will not hesitate to discuss what is a ‘risk’ before they discuss what is the return?. Indians have a general mindset that let’s discuss the positive things and leave the rest to the market to decide.
So learn the risk and the exceptions that can hurt the fulfillment of the investment plan. Check if your investments can be liquidated in a few days. If for some reason you hold more assets which are held for a longer time to mature then you are getting into the wrong zone. Liquidity test will give the first alarm bells if you see something is going wrong
Caustic Asset: If you get to invest in some caustic assets in the form of PMS that may not have restrictions on unlisted securities then your risk element increases. By the virtue of having one PMS scheme which is a minimum of 25 lacs and rests all in mutual funds for a total of 25 lacs across 10 schemes then it does not sound as diversification as 50% of your money is in one scheme that has 20% in unlisted securities.
Check your risk quotient. So be watchful and know what comes into your portfolio so that you can understand what can come out of it.