Photo: iStock
Photo: iStock

Assess risk tolerance before you invest

Evaluating your risk appetite is basically understanding your personal attitude towards risk—how, as an investor, you will react to different situations

How should I determine my risk appetite? I am 35 years old and I earn 90,000 a month. I am new to mutual funds (less than a year) and finding it difficult to pick schemes. Can you please suggest a few schemes? My current goals are buying a car in three years and a house by retirement. I can invest 40,000 every month.

—Akarshit Dua

Evaluating your risk appetite is basically understanding your personal attitude towards risk—how, as an investor, you will react to different situations.

There are many online sites and newspapers, magazines which provide you questionnaires to determine your risk tolerance level. For example, what happens if an investment made with a five-year horizon goes down by 50% within six months. Your reaction will determine your risk behaviour. A knee-jerk reaction or a panic-like situation surely means your risk appetite is low. On the contrary, if you continue holding the investment while being duly concerned but with the understanding of your long-term objective, you will be an investor with a higher risk appetite.

It is also important to increase your knowledge about investments as it will help in increasing your risk tolerance level. This will ensure that you don’t believe in hearsay alone, and can do your own bit of research and analysis to determine the right asset class for you.

You can also consider consulting a financial adviser who will help you in your journey of learning as well as handhold you in picking the right asset class, including mutual funds. Some of the good schemes are Axis Bluechip (large-cap category), Mirae Asset Emerging Bluechip Fund (large- and mid-cap), DSP Equity Fund (multi-cap), Kotak Emerging Equity Fund (mid-cap), SBI Equity and Hybrid Fund (aggressive hybrid). However, the performance of any scheme can change over a period of time and, hence, it is good to monitor them periodically. You can invest for the long term in the above schemes, subject to your risk appetite.

For the short-term goal—purchase of a car—you can invest in a combination of a hybrid fund and a short-term debt fund.

Surya Bhatia is managing partner of Asset Managers. Queries and views at mintmoney@livemint.com

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