Risk profiling is important in financial planning to determine proper investment asset allocation for the portfolio.
Investments should be done according to your own risk profile
Every individual has different attitude and behaviour towards risk based on age, loss bearing capacity, age ,family structure like no of dependents responsibility, liabilities etc
Financial advisor can help you in detail on risk assessment to determine your portfolio allocation based on which category you fall in. Based on this it can be determined how much allocation can be given to equity and debt in your portfolio.
Based on few risk profile example allocation can be done. Below are just an example. One need to contact Financial planner for further analysis and determination of profile for allocation.
1. Conservative : Here Investor is not willing to loose the capital at any cost. So low risk low return. Allocation: 0 to 10 % in equity and 90% and above in Debt related instrument.
2 Moderate conservative: Here investor is little willing to take risk in exchange of little better return with moderate to conservative exposure in equity . Medium Risk Medium return.
Allocation 10 – 30 % equity and 70% – 90% debt.
3. Moderate: Here investor is willing to take higher risk with relatively high return. Moderate Risk moderate return over medium to long term.
Allocation : equity 40 to 60% , 60-40% debt and related instruments
3. Moderately Aggressive: Here investor is aware that there is higher allocation of equity and invest for long term with allocation to equity 70 to 90 % and 10%- 30% in sent and related instruments. Moderately High risk and higher average return.
4.Aggresive Investor : Investor is well aware about the risk of investing 100% in High risk equity for longer tenure and aware about that market may go down and can take away major chunk of capital. Allocation 100% equity, Risk : High risk Return High
There are various website which has risk profiling tool/ questionnaire. Many Mutual fund companies also provide it online for free.
Disclaimer: Above is just an example. Please connect with your Financial planner or CFP for better understanding based on your own risk profiling. .
Link to orginal article which was published in query section of outlook money.
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