Post coverage of Insurance Portfolio, let us try to understand Risk Profiling part of the Investors, based on the certain questions derived out of individual/entity behaviour to ups and down (volatility) of the prices. This risk profiling would be more related to Stock Markets performance although it applies to all asset classes. Generally, risk is classified into four types namely, Risk Averse, Conservative, Moderate and Aggressive.
Risk Averse Investors prefer guaranteed returns on investments such as Fixed Deposits, Government Small Savings Schemes, Tax Free or Taxable Bonds with fixed Coupon rate, top rated debentures of Corporate. Conservative profile might look at Debt funds where returns are not guaranteed but appreciation happen in the falling interest rate regime and indexation benefit is available if investment horizon is beyond 3 years. The returns could be subdued in the rising interest rate era. Moderate risk taking investors believe in combination of Equity and Debt MFs where 65% gets invested in Equity and balance 35% goes into debt securities for tax efficient investors otherwise the proportion could vary. Aggressive investor is the one who is willing to invest in any type of asset class and always have a diversified portfolio with inclination towards Equity and Equity MFs. These type of investors have 5 years+ time horizon and believe in investing more funds when stock market falls. They are even willing to lose part of the capital for deriving maximum gains. There are two maxims which apply for Risk Averse and Aggressive Investors in the form of "Higher risk higher gain" and "Lower risk lower gains".
In order to inculcate savings habit among citizens, Government provides certain Tax Savings benefits that is an avenue for Tax Planning by investors. These type of investments from citizens are also part of the Government long term borrowing program. In other words, investments by Citizens into Tax Saving instruments is a borrowing by the Government where it has to pay interest on the borrowed funds. These Savings are utilized by Government for funding various development plans and/or Citizen Welfare schemes.
Estate Planning is also an important aspect of Financial Planning where seamless transfer of Wealth after your demise to successor or legal heirs is ensured. Wealth means all the assets one own which include property, vehicles, jewellery etc. If there are any liability of the deceased those also get transferred. Nomination, formation of trust, Will (Registered or Un-registered) and Charity are various forms of transfer of wealth.
Stay tuned for the next topic on "Managing Personal Finance".
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