Investment & Risk Appetite

Investment in general terms relates to putting in money in some variety of financial tools with an aim to appreciate the valuation of the capital invested. However a lot of factors are involved in the scenario. Every financial product has its own variety of risk attached with it, market risk being an inherent one. Talking about financial products under major parts it includes equity, bonds, mutual funds, debentures, government securities, municipal bonds, fixed deposits, insurances and lot more. Degree and nature of risk varies from product to product and it also shows the risk appetite and individual’s perception towards the product. 

Let us talk over some major investment products. While Equity is company issued shares and carries maximum risk, the risk return ratio of equities is also high. Capital loss risk being viable out here, it requires a lot of understanding and research. Difficult yet most important sought after component being understanding when to buy in and when to come out. However given the choice of convenience, liquidity, cost of investment and total opportunity of creating a tailor made equity portfolio, cash market witness maximum churning of money and forms the back bone of any country’s financial health. Equity market performance thus reflects the out come of equity investments both at micro and macro level. The most regularly quoted market indices are broad-base indices comprised of the stocks of large companies listed on a nation's largest stock exchanges, such as the British FTSE 100, the French CAC 40, the German DAX, the Japanese Nikkei 225, the American Dow Jones Industrial Average and S&P 500 Index, the Indian Sensex, the Australian All Ordinaries and the Hong Kong Hang Seng Index.

Here we can say that given time frame of a long horizon [> 1 year] equity returns are positive but obvious proposition lies beneath is the investment value of time associated with it: opportunity cost of investment.

Bonds are one of the safer bet among various instruments of investments being issued by financial institutions, government sector, corporate bonds, high yield bonds, mortgage bonds, public sector companies. Bond market closely relates to market movement quite similar to cash market, bonds carries a certain amount of promised return, however it carries it own variant of risk. Issuer default risk, bond market risk, interest rate risk (IRR). Even though less liquidity, longer time frame and more cost of investment, on risk return analysis bond is less risky, low income generating than equity investment. Mentionable US bonds can be Lehman U.S Aggregate, Saloman Big, Merrill lynch Domestic Master, CPMKTB- The capital market Markets Bond Index.. A few government bonds index like- Saloman Smith Barney World Government Bond Index, J.P Morgan Government Bond Index and lot more.

With lesser fluctuations compared to cash market or equity market, investment in bonds can be a well measured step.

Mutual Funds investment may be observed as good option with risk lover and averter simultaneously given the nature of fund to strike the investment. Carrying the variant of equity funds, debt funds, liquid funds, gilt funds and sub categorizing them even further gives a handsome amount of choice to deal with. While equity funds carries maximum risk compared to other category, income generation is also maximum. However other variants, market risk when taken into consideration, most variety of choices can be made in mutual funds, depending on the time horizon..

However when talking about risk, it actually refers to monetary loss, capital depreciation, opportunity cost of investment on a definite time frame. All said it remains a personal call to choose from, to invest in, time, risk appetite and an obvious introspection and analysis.



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