Retirement Planning contd1...

Risk vs. Return

Returns are linked to the risk taking ability of individual. Risk-Return profile of an individual is ones level of tolerance. A high risk venture/investment is generally associated with high returns. Securities and Exchange Board of India (SEBI) has categorized three risk-return profiles for investors:-

Conservative : One takes minimal risks ensuring ones fund remain secure. One would prefer investing in Government Small Savings Schemes, Bank Fixed Deposits and Government Securities where one gets guaranteed kind of returns on the funds invested.

Moderate : One is willing to take some risks when one is inclined to invest in market-linked investment schemes. Generally, these type of investors prefer investing in combination of Equity and Debt funds. which are also called Balanced Funds and/or Hybrid Funds.

Aggressive : One is willing to take high risk and prefer investing in direct equity, mid-cap and small cap equity, Alternate Investment Funds, Commodity markets and derivative instruments where one may even lose part of the capital.

Risk profile might undergo change during the course of employment/business. Therefore, monitoring, periodical review and re-balancing of investments is advisable. SEBI has allocated colour coding basis risk profile of an investor; Blue colour depicts Principal at low risk, Yellow colour represent Principal at medium risk and Brown colour means Principal at high risk.

While it is advisable to start building retirement corpus as soon as one commences earning for a sizable corpus at the time of retirement but one could start investing whenever surplus funds are available either in lump sum or through Systematic Investment Plans.

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