How to Spread the Risk of Your Investment

Investing idle money in various sources is always a good idea for those who want to utilize their earnings, as the saying goes nothing makes more money than money. Returns from the investments can keep you afloat in tough times to help pay the bills. But managing the risks of the investments is a matter of paramount importance failure to which can lead to unrecoverable losses which would defeat the purpose of investing in the first place.

According to a recent survey, 4 0ut of 10 investors don’t know how their portfolio is split between equities, bonds and other investments; let alone talking about spreading it. More exposure to equity would give better returns but will double the risks too; a higher stake in debt is sure to reduce the risk but also reduces the yield. So what is the best way to spread the risk while still reaping good profits? 



Here are some options to efficiently spread the risks:

Real Estate: A real estate fund is a professionally managed portfolio of diversified real estate holdings. Instead of investing a large sum in one asset, Real estate funds invest the money in multiple big commercial projects to spread the risk and yield a good overall return for their investors for a charge of 2%. Although the real estates are also subjected to appreciations and depreciations, it is advisable to invest for long term to absorb the variations as it can yield up to 20% over a period of 8-10 years.

Mutual Fund: Like real estate funds mutual funds are also professionally managed funds that invest money in publically traded financial instruments like equity, bonds and commodity. The decision to choose the exposure proportion of the sum belongs to the investor. An investor can go for more debt exposure or for more equity of a balanced mix, whichever option suits the investor.

Bonds: Compared to other investment funds in India Real Estate funds balance the risk and yield for the investors more efficiently, but it is a long term commitment as the fund cannot be withdrawn before at least three years. However, there is no such limit on bonds. Bonds are a loan to the issuing companies who pay a fixed interest until maturity but they can be called before maturity for liquidation purposes the only act is that they don’t as much return as the real estate funds.

Fixed Deposits: FDs are the most popular option for risk free investment that can yield as much as 9% on compound interest. The tenure of an FD can range from 7 days to 20 years with a tax benefit under section 80 C of income tax by investing in Tax saving FD.

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