While increasing your exposure to high-risk investments, it’s vital to diversify your investments across various instruments to reduce the overall risk.
Most investors implement strategies to minimise risks and losses. However, they may fail to factor in the risk of not taking any risk at all. Putting all your money only in low-risk instruments can garner guaranteed returns, but those returns may not be enough to meet your financial goals on time. If you’re wondering which instruments could best complement your low-risk investments, here are a few options you might find helpful.
Equity mutual funds SIP
Equity mutual funds are one of the best ways to earn a higher return on investment (ROI). It is managed by qualified fund managers who focus on securing high returns while minimising risk. The best way to invest in an equity fund is a Systematic Investment Plan (SIP).
Direct equity investments
Investing directly in stocks is highly risky but can give you phenomenal returns if you select the right stock and have the necessary knowledge of the stock market. For direct equity investments, you need skills like fundamental analysis and technical analysis, and you also need to stay updated with the market trends and news. Invest directly into equities only if you have a high-risk appetite and the requisite skills.
Unit Linked Plans (ULIPs) are managed by skilled fund managers from insurance companies. ULIPs allow you to switch between equity and debt assets. Apart from ROI, they provide insurance cover as per the applicable policy terms. ULIPs come with a lock-in period of five years. However, if you’re looking purely at life insurance, buying a term insurance plan may give you adequate cover at a much cheaper price.
Real estate is a versatile investment tool for investing for the long-term. It offers rental income as well as capital gains benefits apart from providing a shelter for your family. Home loan repayments also offer several tax benefits under Sections 80C and 24. To invest in real estate, you need a long-term investment approach, strict due diligence, and a high-risk appetite.
National Pension Scheme
If your investment view is for a very long-term and you are also looking for annuity income after retirement, NPS can be an excellent option. It allows you to switch investments between debt and equity asset classes. On reaching the superannuation age of 60 years, you can withdraw up to 60% of the corpus tax-free in a lump sum and the remaining 40% has to be invested to purchase an annuity plan.
While increasing your exposure to high-risk investments, it’s vital to diversify your investments across various instruments to reduce the overall risk. But you also need to secure optimal diversification, not over-diversification, to ensure you meet your targets on time. Thus, invest in only those high risk/ high return investment products strictly that are in sync with your long-term financial goals. Keep a strict watch on your investment portfolio and make changes only if required to accelerate your goal-meeting journey while keeping the risk under control.
The author is CEO, BankBazaar.com