A risk profile is one of the most important things to analyse before making an investment. Ideally, experienced investors would know their risk ability, but a newbie would have a very little idea about the risk involved with Mutual Funds or the right mutual fund as per their risk appetite.
In many certains, most of the investors were overconfident at the time of Investing and they turn extremely nervous as the Market becomes volatile. Hence, knowing your risk profile remains at the center stage of any investment.
Especially in the case of mutual fund investment, the suitability of a product largely depends upon the characteristics of the investor. Investors should know their investment objective, how long they wish to invest, ability to tolerate risk, minimum investment amount, etc.
Risk– with respect to investing– is the Volatility or the fluctuation of the prices and/or investment returns. So risk assessment or risk profiling is the systematic evaluation of all the potential risks involved in the investment activity. Risk profiling gives you a clear picture of your risk appetite, i.e. evaluating your risk capacity, your required risk, and your risk tolerance. We will elaborate each term separately.
When an investor conducts their risk profiling, they have to answer a set of questions designed specifically for the purpose. The set of questions differs for different Mutual Fund Houses or distributors. The score of investor after answering the questions determines their Range of taking a risk. An investor can be a high-risk taker, mid-risk taker or can be a low-risk taker.
Once the risk is identified by the risk assessment procedure, that risk is then analysed. It is divided into three broad categories -
Risk capacity is the quantitative measure of taking a risk. It maps your current and future financial position which includes factors like Income, savings, expenses, and liabilities. With these factors evaluated, the rate of returns required to reach your Financial goals is determined. In simple words, it is the level of the Financial Risk you can think of affording.
Risk required is determined by your risk capacity. It is the risk associated with the returns needed to reach your financial targets with available resources. Risk required educates you about what you could potentially be taking on with a certain investment. It gives you an honest perception and a clear picture about the type of the risk you are about to take.
Risk tolerance is the level of risk you are comfortable with. It is simply your willingness to accept the fluctuations in the market that may or may not occur in order to achieve your financial objectives. Risk tolerance can be broadly divided three types
- High-Risk Tolerance
- Mid-Risk Tolerance
- Low-Risk Tolerance
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To determine the category in which you fall there are certain parameters considered
|Factor||Influence on Risk Profile|
|Earning Members||Risk appetite increases as the number of earning members increases|
|Dependent Members||Risk appetite decreases as the number of dependent members increases|
|Life expectancy||Risk appetite is higher when life expectancy is longer|
|Age||Lower the age, higher the risk that can be taken|
|Employability||Those with steady jobs are better positioned to take risk|
|Psyche||Daring and adventurous people are better positioned mentally, to accept the downsides that come with risk|
|Capital base||Higher the capital base, better the ability to financially take the downsides that come with risk|
|Regularity of Income||People earning regular income can take more risk than those with unpredictable income streams|Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2022 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Sub Cat. Franklin India Ultra Short Bond Fund - Super Institutional Plan Growth ₹34.9131
₹297 1.3 5.9 13.7 8.8 0% 1Y 15D Ultrashort Bond Essel Liquid Fund Growth ₹24.2169
₹126 1.6 3 5.3 4.1 5.1 6.41% 1M 6D 1M 10D Liquid Fund BOI AXA Liquid Fund Growth ₹2,541.28
₹453 1.7 3.1 5.2 4.1 4.9 6.59% 1M 10D 1M 13D Liquid Fund Baroda Pioneer Liquid Fund Growth ₹2,543.86
₹5,011 1.6 3.1 5.2 4.2 4.9 6.72% 1M 8D 1M 12D Liquid Fund IDBI Liquid Fund Growth ₹2,377.21
₹634 1.6 3.1 5.2 4.3 4.9 6.6% 25D 25D Liquid Fund Axis Liquid Fund Growth ₹2,457.42
₹29,674 1.6 3.1 5.2 4.2 4.9 6.47% 1M 4D 1M 5D Liquid Fund Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 7 Aug 22 Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2022 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Sub Cat. UTI Banking & PSU Debt Fund Growth ₹18.3822
₹527 2 2.4 10.9 7.2 10.3 7.39% 3Y 3M 29D 4Y 1M 13D Banking & PSU Debt Aditya Birla Sun Life Corporate Bond Fund Growth ₹93.3608
₹12,603 1.8 3 4.8 6.5 4.1 7.6% 1Y 10M 10D 2Y 4M 13D Corporate Bond HDFC Corporate Bond Fund Growth ₹26.9031
₹23,220 1.7 2.9 4.2 6.1 3.3 7.58% 2Y 6M 4Y 10M 2D Corporate Bond HDFC Banking and PSU Debt Fund Growth ₹19.2122
₹4,831 1.6 2.7 4.1 5.6 3.3 7.49% 1Y 8M 23D 2Y 9M 25D Banking & PSU Debt PGIM India Short Maturity Fund Growth ₹37.8531
₹25 1.7 2.6 3.9 4.8 3.3 6.75% 11M 26D 1Y 1M 24D Short term Bond ICICI Prudential Short Term Fund Growth ₹49.9643
₹15,528 1.7 3.3 5.6 6.2 4.7 7.85% 1Y 4M 20D 4Y 8M 19D Short term Bond Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 3 Feb 23 Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2022 (%) Sub Cat. Aditya Birla Sun Life Medium Term Plan Growth ₹31.658
₹1,647 1.9 3.1 25.7 13 7.9 24.8 Medium term Bond Edelweiss Government Securities Fund Growth ₹20.503
₹117 2.6 2.6 4.2 6.7 7.6 2.5 Government Bond ICICI Prudential Medium Term Bond Fund Growth ₹37.1892
₹6,255 1.9 2.9 5.4 6.5 7 4.2 Medium term Bond Axis Strategic Bond Fund Growth ₹23.0978
₹1,598 2 2.8 4.8 6.3 6.7 3.8 Medium term Bond ICICI Prudential Gilt Fund Growth ₹84.1889
₹2,601 1.5 3.9 6.5 6.3 7.8 3.7 Government Bond SBI Magnum Medium Duration Fund Growth ₹42.5482
₹7,146 2.2 3.1 4.4 6.3 7.4 3.4 Medium term Bond Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 3 Feb 23 Fund NAV Net Assets (Cr) 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 5 YR (%) 2022 (%) Sub Cat. Principal Emerging Bluechip Fund Growth ₹183.316
₹3,124 2.9 13.6 38.9 21.9 19.2 Large & Mid Cap PGIM India Midcap Opportunities Fund Growth ₹42.49
₹7,558 -6.3 -1.3 -4.5 30.2 17 -1.7 Mid Cap Parag Parikh Long Term Equity Fund Growth ₹50.0764
₹28,248 4.2 5.5 -2.4 22.6 16.1 -7.2 Multi Cap Kotak Small Cap Fund Growth ₹161.23
₹8,498 -2.6 0 -3.7 26.9 15.1 -3.1 Small Cap Nippon India Small Cap Fund Growth ₹91.0205
₹23,701 -1.9 5.6 3.6 31.1 15.1 6.5 Small Cap Axis Mid Cap Fund Growth ₹65.41
₹19,144 -5.2 -2.4 -4.2 16.8 15 -5.1 Mid Cap Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 31 Dec 21
Risk profiling gives you the clear picture of all the risk and returns expectations from an investment. It helps you create a focused strategy to invest in a manner that will help you reach your financial goals. Your financial advisor is expected to give you all the necessary information regarding risk assessment and help you carry out the same. Securities and Exchange Board of India (SEBI) and The Association of Mutual Funds of India (AMFI) both have stated the guidelines and norms for carrying out a detailed risk assessment of the investor and then suggest them the appropriate schemes. Such approach helps in reducing the losses that might occur if an investor invests in a scheme that is out of their risk appetite.
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