Risk forms an inherent part of investment portfolios. No wonder then that it features as an important part of investing discussions, whether with your portfolio manager or with fellow investors. 

While the general sentiment seems to be anti-risk, or to stay as risk averse as possible, financial experts feel that taking some calculated amount of risk adds that extra alpha to your portfolio returns thereby beating the impact of factors like inflation on your investments. 

What is investment risk?

Investment risk means the degree of uncertainty or potential financial loss that can result from making a certain investment. When you invest your money into a certain investment, you cannot predict how that investment will fare in the future – the actual returns that you accrue from the investment decision could be higher or lower than what you had expected at the time of making it. 

If the actual returns are higher than expected, you earn profits while if the returns are lower, you end up suffering a loss. Different investment options carry different levels of risk. For instance, an investment into fixed deposits is considered to be low risk as the difference between expected returns and actual returns is low while an investment into direct equities is considered high risk as returns from stock markets could be different from expectations owing to external or internal factors. 

Can calculated risk be good for investments?

Financial experts feel that taking calculated risk in your investment strategy can actually be beneficial from a returns perspective, especially over the long term. The reason for this is that risk and returns are closely related and in a majority of cases, the bigger the element of risk you take, the greater the chances of earning higher returns. 

Taking a calculated amount of risk in your portfolio has proven to help create wealth for you in the long term and also gives returns that beat inflation, making the entire exercise worthwhile. What must be remembered at all times is to strike a balance between risk and reward.

How to create a balanced portfolio with the right risk-reward breakup?

The first thing every investor needs to know here is that not all ‘high-risk’ investments offer comparable rewards. This means that while one investment with a high level of risk categorization can offer high returns, this may not hold true for another ‘risky’ asset class where the returns may not be comparable over the long term. 

In order to strike the right balance between risk and returns, you must diversify your investment to include asset classes with different risk assessments, so as to achieve the right balance between risk and rewards.

For this, it is imperative to know your risk appetite and the maximum level of risk that you can afford to take. It is advised to take higher levels of risk earlier in life and reduce the quantum as you grow older and near retirement. You must also rebalance your portfolio to ensure that you have the right risk-reward ratio which is in accordance with your life goals and financial status. These may also change from time to time.

Top investment options when you have a high to medium risk appetite

Some of the options you can look at to introduce some element of risk in your portfolio are: 

• Initial Public Offerings (IPOs) which are flooding the Indian equity markets today. If you have a short-term investment horizon, you can benefit from listing gains if the company you have invested into is fundamentally strong
• Equity Mutual Funds which invest into equity markets so you can gain from the highs and lows without having to time the market on your own. These mutual funds are managed by experienced fund managers who do the task for you
• REITs which allow you to invest into companies that in-turn invest into income-generating real estate commercial and residential properties. This allows you to get an exposure into real estate without having to block a large amount in a property
• Index Funds which track the benchmark indices and allow you to enjoy the rewards they offer. It is a way of passively investing into the stock markets 

An all-in-one solution to your portfolio needs

If you are among those who can’t decide which is the right investment for you after an assessment of your risk profile, HDFC Life Sampoorn Nivesh is a Unit Linked Non Participating Life Insurance plan that could be the solution you need to introduce risk into your investment portfolio. 

This is a unique insurance cum investment plan that allows you to spread out your investment across 10 low, medium and high risk fund options to ensure good returns. As an investor, you can choose either all or a combination of the available fund options, depending upon your risk appetite. You can even switch from one fund to another, or from one portfolio strategy to another. This option also offers varied benefit options so that you can customise your insurance plan to meet your individual protection needs. 

For starters, you can choose your investment term – this can range between 10-35 years for Single Pay premium payment option and 85 minus your age at the time of taking the plan for Limited/ Regular Pay payment options. There is also an option to take the benefit for Accidental Death or to enhance the value of your fund after 10 years if you feel your financial goals need to be revised. 

Disclaimer: This article has been produced on behalf of the brand by HT Brand Studio.