How to measure your risk appetite before investing
Updated: Feb 27
‘What is the best mutual fund that I can invest in?‘ If we could get a rupee for every time we have been asked that question, we would be millionaires!
The simple truth is there is no single answer to this question, else such a fund would be the default choice for everyone. Investing is called “personal” finance because each individual’s situation determines what investment may be best suited for her.
Goal-based investing is one of the most effective ways to invest. You can turn any life goal into a financial goal by determining these three factors.
The purpose of the goal (buying a car, travel etc)
The cost of that goal today
The time at which you would require the fund
For instance, you want to build an education fund for your higher studies in five years. With the above three factors at Basis, we help you figure out what is the amount you would need to build for by considering other variants such as inflation.
But even with a goal, how can you decide which fund is the best-suited fund for you? This is determined by your Risk Profile, which is your ability to deal with your investment suddenly losing a lot of value. Your risk profile is dependent on various factors and can change at different times of your life.
How do you know your risk profile? You don’t have to take a guess or resort to soul searching, we have you covered at Basis. Here’s how you can do it in a few simple steps.
Set a goal:
Choose the ‘invest’ icon on the bottom navigation bar and proceed with the ‘Start Investing’ button. Select ‘Create a goal’, browse through some pointers provided to help you to set goals. Pick a pre-defined goal such as travel, education, emergency or build for a custom goal according to your needs.
Take the quiz:
Once you have selected the goal duration, move on to selecting your risk profile. To know your profile click on the link for a short questionnaire. The multiple-choice questionnaire is designed to weigh in many areas of your life; such as your income level, current and future, your age, comfort with variations in investments and so on. At the end of the test, you will receive the resultant risk profile and a short description of what it means with respect to investing.
Check your risk profile against returns:
Risk and return are related. Higher the risk, higher the return. With your risk profile known, on your goal screen, you can now see an estimated projection of returns for your investment. When you change the risk profile the estimated return also varies. Select your profile and go ahead with the investment to payments segment.
Your risk profile will be saved as part of your portfolio. Your risk profile can change in time with changes in income prospects, age, life situation, marital status and so on. Your risk profile can also vary across different investments. For instance, you might be more conservative for a goal such as education but are willing to take on a bit more risk for something like travel.
So if you are not sure about the result the next time, simply retake the quiz when you invest on the Basis app.