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Wednesday, 22 May 2013

Risk management is very important in Financial Planning

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Risk management should ideally be the focus point of any investors' financial plan. However, unfortunately there are number of investors who do not focus on this very important aspect of their investment process.

 

Usually, investors have to manage two types of risks. One risk is to the investment that they make.

 

Second is the risk of any financial distress to the family member in case of an unfortunate event of a death or a disability.

 

As far as the investment risks are concerned, there are broadly four types of risks that an investor need to manage. Firstly, there is a performance risk. Every investor portfolio has a mix of securities and they tend to behave differently over different time periods. This obviously over a period of time have an impact on the portfolio return. So to minimize the impact of these non-performing securities on the portfolio, it is very important for every investor to have a diversified portfolio. So diversification is the key here.

 

The second risk is the volatility risk. There are asset classes like equity and to an extent even gold, which have the potential to do very well over the longer period. However, for an investor to benefit from the long-term potential of these asset classes they have to manage the risk of volatility in the medium-term and short-term, which can be done by a systematic investment. So disciplined investor can benefit over the long-term.

 

Third risk is the risk of inflation. This perhaps is the biggest risk for any long-term investor. Therefore, the asset allocation has to be such that it should be able to beat inflation over a period of time. It is equally important to invest in those instruments, which have the potential to provide tax efficient return. So that investors can earn positive rate of return on consistent basis. This is where I think options like mutual fund score over others.

Happy Investing!!

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Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

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  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

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Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
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    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
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      1. Reliance Equity Opportunities Fund
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      4. IDFC Premier Equity Fund
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    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

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