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Risk Vs Volatility
Published On , 20 Nov 2018 By TT Connect
With general elections in six months, India’s economy and financial markets are witnessing a volatile trend. A key reason for that is the uncertainty of the future outcome. As an ordinary investor, you may consider holding back your investments. You clearly perceive more risks due to volatility. In a bid to not take the risk, you may miss out on a bargain.
What is Risk?
Investments and risk go hand in hand. You might be thinking that Fixed Deposits (FDs), Real Estate and Gold are risk-free investments. This is not true. In FD, your money is prone to a default risk. Further, returns from FD cannot beat inflation. In Real Estate investment, you don’t have Liquidity. Thus, you face Liquidity risk. Gold investments also face Liquidity risk. Besides this, Gold rates have been flat for a long period of time. To get returns that beat inflation, you need to take a little more risk. A risk is not always a bad thing. As an investor, you can benefit from your ability to take risks.
What is Volatility?
Volatility simply means a rapid change in the value of shares, bonds etc. over a given period of time. High volatility indicates rapid increases and dramatic falls in the markets. Such movement in prices is attractive to traders and some investors.
How you can benefit from risk?
In Mutual Fund investments, you get to choose your own risk. You should know your risk appetite. There are different Funds available for different risk levels. You can invest in low-risk Debt Funds. You can also invest in Equity Funds if you are willing to take more risk.
You can refer to the Mutual Fund Riskometer. For each risk profi le, there are a plethora of schemes available. If you are confused with high and low risk, choose Hybrid Funds. Hybrid Funds come with moderate risk.
Investing in Systematic Investment Plan (SIP) can help you overcome volatility. SIP can also give you good returns in the longrun. You don’t have to time the market. You can invest a pre-determined amount through different price cycles. You eventually, end up with an average cost. This cost averaging helps you manage volatility.
You will benefit from long-term investments. Historical data of SENSEX and NIFTY shows that in the long-run markets march forward. Fluctuations are a short-term thing. Experts always recommend Equity Funds for long-term Goals. This extra time helps investors get good returns, despite volatility
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