Gyaan guroovaar

WAYS TO REDUCE POTENTIAL RISK IN EQUITY

Investing comes with risks. The more risk the investor is willing to take, the more potential for high returns. But great investors know that managing risk is more important than making a profit, and proper risk management is what can lead to profitable investing.

Each investment product has certain risks that come with it, while some risks are inherent in every investment. Here are ways to reduce risk in equity:

Investment in a portfolio

• Individual stock bets are risky
• Asset Allocation + Portfolio Diversification

Time diversification works

• Equity is for the long term

Behavioral aspects influence decision making

• It helps having professional help

How to Alleviate the Risks Involved in Equity Investing?

Portfolio Diversification

• “Don’t put all your eggs in one basket.”
• Expand portfolio to include securities of different companies
• A well diversified portfolio will minimize any company specific or sector specific risks

However, it is not possible for one to do away with Systematic risk as they are inherent in the Equity Investment process.

Time Diversification

• Time diversification refers to the reduction in risk of a portfolio over time
• Investors returns are closer to the mean, lower risks and thus lower probability of loss of wealth

Disclaimer

Views provided above are based on information available in public domain at this moment and subject to changes. Please consult your financial advisor for any investment decision.

Document intended for distribution in Indian jurisdiction only and not for outside India or to NRIs. HSBC MF will not be liable for any breach if accessed by anyone outside India. For more details, click here / refer website.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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