Step 4: Understand your Risk Profile

Risk Profiling comes at the 4th step and supposed to be the backbone of your all investment decisions. However, 90% of investors just ignore this important step and go directly into the investments without knowing their risk appetite, which eventually converts into huge losses over a period of time. 

Risk profiling works on human phycology, behavior finance, and mindset which contributes 80% towards your return. It is essential because investor psyche and investor behavior play an important role in long term returns. Market se paisa nahi banta – Midset se banta hai!

An investor could be belong to any of the following categories:

 - Conservative

- Moderate, or

- Aggressive

A typical conservative investor could panic during volatile markets and might sell his units/shares at the worst time which is usually the bottom of the market. An aggressive investor on the other hand would be comfortable in a riskier asset class which can give higher returns but carry high risk (volatility) too. Once you have understood your risk profile, the task of scheme selection is easier as you can match your return expectation with the scheme's objective.

Everyone needs a high return, but for that how much risk one can digest, is also need to understand. Therefore, know your Risk Appetite & Rerun expectations before investing.

Layman के हिसाब से समझे, कि अगर मै ४ रोटी खा लेता हूँ लेकिन मै २ रोटी ही digest कर पता हूँ तो मेरे को हेल्थ से related प्रॉब्लम होना तय है. This golden concept is applicable to investing as well. High Return सबको चाहिए होता है लेकिन उसके लिए कितनी Risk digest कर पाते हैं, ये important है

A risk profile works as a barometer to match an investor's risk appetite & return expectations.