There are various investment options available in the market that one can choose from. However, getting the right one, depending on your risk appetite, is a difficult task.
For investors with a low-risk appetite, any and all kinds of investment is not the ideal approach.
George Mitra, Co-Founder and CEO of Fintso, says, “Given the low-risk appetite of an investor, the maximum allocation in the portfolio should go to fixed income schemes.”
He adds, “Within fixed income, the investor should consider allocating to short-duration schemes. Other asset classes, such as Gold and Global Investments, should also be part of the portfolio.”
1. Model Portfolios
Volatility is here to stay, says Mitra – “with uncertainties ranging from the Russia-Ukraine war and its effects on the supply chain to the rising inflation and the impact of monetary tightening across the world to the economic crisis affecting our neighbouring country.”
Given the underlying volatility in equity, experts suggest investors with a low-risk appetite tend to avoid allocating monies to equities.
An investor with a low-risk appetite should consider allocating 10-15 per cent of their portfolio to equities, provided they have an investment horizon for at least 3-years. However, while allocating to equities, Mitra points out, “one needs to be mindful of diversification within equity as an asset class. A portfolio diversified across sectors, themes, and market capitalization helps reduce overall volatility.”
Once the portfolio is created, as an investor, consider rebalancing the portfolio every year as each asset class’s risk and return profile vary according to the market volatility. Portfolio rebalancing helps to realign the portfolio to a model portfolio, thereby avoiding over/under exposure to a particular asset class due to market movement. A disciplined approach, experts say helps us reduce emotions in investing.
2. Advised Baskets of Stocks and ETF
Instead of investing in individual stocks or a group of random stocks, consider investing in baskets. A basket is a set of multiple securities that trade as a single portfolio.
Mitra explains, “The components of the baskets are selected based on a particular strategy or theme designed by the professionals. An investor can choose a pre-defined basket or create a custom one based on their preferences.”
A few baskets are illustrated below based on various risk-return profiles;
● Low Risk – Multi-asset Basket
Investors with a low-risk appetite can choose to invest in a multi-asset basket. Like equity, debt, and ETFs. Rebalancing this basket helps combat concentration and volatility risks, which helps to reach the goal.
● Medium Risk – Diversified Sector Rotation
A curated basket with a Sector rotation strategy would do very well in volatile conditions.
3. Global Investments
More than 50 per cent of all brands we know of – whether Google, Meta, Apple, or Nike- are not based in India. However, Maitra explains, “we do have a way to participate in their growth directly. Through Liberalized Remittance Scheme (LRS) investors can make international investments in global assets like shares, mutual funds, exchange-traded funds (ETFs), etc.”
Having said that, instead of individual securities, it is recommended to invest for the long term in a basket of stocks or ETFs designed for a particular theme or strategy. Experts say, even for an investor with a low-risk appetite, an investor can consider allocating around 10-15 per cent of the portfolio to global investments.
4. Corporate Fixed Deposits
Corporate Fixed Deposits are term deposits offered by several companies and NBFCs. “These FDs offer higher interest rates compared to savings accounts and bank fixed deposits and provide regular cashflows. One should invest in high-rated corporate FDs to reduce the credit risk.”
The advantages of these investment avenues;
1. Low minimum investment value makes them best suited for retail investors
2. Investments can be made via SIP route or lumpsum
3. Since there are no lock-in periods, investors can withdraw funds as per their requirements.