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  • Why The Market Always Reacts To The Fed’s Interest Rate Hikes – Part 1

    The Federal Open Market Committee (FOMC) announced on December 14 that the federal funds rate would go up again, this time by 50 basis points, to a range of 4.25% to 4.5%.

    This move comes after the central bank raised interest rates by 75 basis points in June, July, September, and November, and by smaller amounts in March and May. All of these moves were part of the central bank’s plan to combat persistently high inflation.

    Even though the committee noticed that the job market was strong, it decided to raise rates because of the continued gap between supply and demand and the ongoing conflict in Ukraine.

    The FOMC has maintained that the Committee expects that ongoing increases in the target range will be appropriate to achieve a monetary policy stance that is sufficiently restrictive to return inflation to 2% over time.

    Inflation can take a long time to return to normal, which can be detrimental for consumers who are already struggling. It also takes a few months for changes in Fed policy to make their way through the economy. But it’s important to remember that some of the policies’ financial effects, like higher interest rates on borrowed money, can be felt more quickly.

    How the Fed’s rate hike can affect US citizens in 3 ways. In a similar manner, when the RBI increases the interest rate in India, your money will be affected.

    Interest on credit cards is becoming more expensive
    When the Fed raises interest rates, it costs you more to carry a balance on your credit card. This is because the interest rates on consumer debt, like a credit card balance, tend to move in lockstep with the federal funds rate.
    The interest rates that commercial banks charge each other for short-term loans depend on this key interest rate. When the fed funds rate goes up, it becomes more expensive to borrow money, which can make banks and other financial institutions less likely to borrow money.

    The banks pass on the higher costs of borrowing by raising the interest rates they charge on loans to consumers. Most credit card companies base their annual percentage rate (APR) on the prime rate, which is the rate banks charge the customers with the least risk for loans, plus a percentage to cover costs and make a profit.

    But most APRs are variable, which means that when you get a new credit card, the interest rate you agree to pay can change based on the prime rate. So, if your credit card’s annual percentage rate (APR) is 18.15 percent and the Fed raises the federal funds rate by 75 basis points, your issuer is likely to raise your APR to 18.90 percent.

    The cost of carrying a credit card balance goes up as the interest rate on that balance goes up. Consider paying off as much of your debt as possible or using a balance transfer card with 0% APR to reduce how much extra money you’ll have to pay on your debt.

  • Tips To Determine If The Market Is Overvalued

    There are several signs that the market gives before going into a correction or even a bear market. If you do your research, you might notice these signs and shield your portfolio from losses. Read on to know more.

    Peak valuations: During a stock market bubble, prices go up because of how people feel about the market and because they follow the crowd. Prices are too high compared to what they are worth. Simply put, this means that a company’s fundamentals aren’t getting better as fast as the price of its stock.

    High leverage: Speculators can borrow money from brokerage firms (on margin) or NBFCs to keep the bull market going. Due to the high margin and the never-ending cycle of debt, when stocks go down, investors’ wealth may be completely wiped out.

    Low-interest rates: They are one way that the government encourages people to borrow money and invest. It also encourages FDI or FPI, which are two types of foreign investment. It doesn’t work well with the stock market. This means that when interest rates go down, the market goes up.

    Trend Popularization- There are times when stories about bull markets are told too often. When the media talk a lot about certain stocks, their prices go up a lot. This is called a bubble.

    A lot of IPOs that were oversubscribed—Given how things are, there have been a lot of IPOs in the last two years, and 90% of them were oversubscribed, which shows how bullish the market is.

    Market Capitalization to GDP Ratio: This metric shows how much a country’s stock market is worth compared to its GDP. India has a market cap that is more than 75% of its GDP. This means that the Indian stock market is worth 75% of the country’s GDP.

    PE Ratio: The PE ratio is a good way to tell if the stock market or a company is overvalued.

    Most of the time, the Nifty PE ratio is between 15 and 25. If the PE ratio goes below 20, you could say that the market is undervalued. A PE ratio of 20 to 25 means that the market is fairly priced. If the PE ratio is more than 25, it means that the stocks are overpriced. Let’s look at an example of this to help you understand it better.

    Several other indicators, such as the Buffet Indicator, the SmallCap Index, and the Sensitivity Index, can also be used to spot a stock market bubble. Even so, you can’t always count on these signs to accurately predict the bubble.

    What causes the stock market to drop?

    A correction will happen if investors start selling stocks in large numbers because of something like changes in the global economy, rising inflation, a slowdown in economic growth, or even selling out of fear or panic. When a certain number of investors start selling, it causes more investors to do the same. This is called a spiraling effect.

  • Types Of Share Market Brokers In India

    Full-service brokers and discount brokers are the two main types of stockbrokers in India.

    Full-service brokers are the most common type of broker. They offer a wide range of services, such as buying and selling shares, investment advice, financial planning, portfolio updates, research and analysis on the stock market, help with retirement and tax planning, and more. These brokers will give you advice and services for investing that is tailored to your needs and financial goals.

    Discount brokers are online brokers who offer simple stock trading accounts. They are known for providing the most important trade services for the least amount of money while not offering any personalised services.

    Here are a few things that share brokers can help you in the times of:

    Important things to know

    1. Moving averages – They are based on the past performance of a stock and show its general direction and where it is expected to go in the future.

    2. The business cycle: In this cycle, market fear is followed by market greed, which is then followed by more market fear. The best time to buy stocks is when people are most afraid, which is when the economy is in a recession and stocks can be bought for cheap. On the other hand, when the economy is doing well, stock prices go through the roof. This lets traders make money by selling their shares for more than they bought them for.

    3. Diversification: Investing in many different companies in many different industries is best because it protects investors from inevitable market drops and makes the market less volatile.

    4. Stock price: You shouldn’t buy or sell stocks based on how much they cost. Think about whether or not the price is fair, as well as other things like how the market or economy is doing.

    5. Traders need to be aware of the type of buy or sell order they place, which may have price or time limits. Brokers will only fill limit orders if the price is exactly what the trader wants it to be. Stop-loss orders are given to stockbrokers by traders so that the value of their stocks doesn’t drop too quickly.

    Before investing, there is more information to think about:

    Budgeting

    The first step in financial planning is making a budget, which is a way to track, plan, and manage how much money comes in and how much goes out. It involves writing down every source of income and keeping track of all current and future costs so that you can reach your financial goals.

    Risk and Payoff

    Most of the time, the bigger the maximum profit, the riskier the investment, and vice versa. Risk is the chance or potential of losses happening in relation to the expected return on investment. Find out how to weigh risk and return when making an investment.

    The ability to add

    Compounding is when an asset makes money that can be re-invested or left alone to continue making money. In other words, compounding is the way that old money is turned into new money.

  • The Basic Concepts Of The Indian Share Market

    On the stock market, investors can buy and sell shares, bonds, and other types of financial assets. A stock exchange is a platform where investors and traders can buy and sell shares.

    The two biggest stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Also, businesses can list their shares for the first time on a market called the primary market. The shares are then bought and sold again on the secondary market.

    Roles of Stock Market Participants: A stock market is a place where financial products can be bought and sold. Brokers, traders, and investors must register with SEBI, the exchange (BSE, NSE, or regional exchanges), and the companies they work for before they can trade (listing their shares).

    Securities and Exchange Board of India (SEBI): SEBI is the market regulator whose main job is to make sure that the Indian stock market runs smoothly and openly so that average investors can invest without worrying. SEBI has set up rules that all exchanges, businesses, brokerages, and other participants must follow.

    Stockbrokers: Members of exchanges are stockbrokers. They are the middlemen who carry out investors’ buy and sell orders in exchange for a fee. In the Indian system, investors must trade through broking houses or brokers, who act as middlemen.

    Investors and traders are the two main types of people who take part in the market. When investors buy stock in a company, they want to keep it for a long time and make money from it. traders buy and sell stocks, while investors only buy and hold stocks.

    Investors’ actions are influenced by the success of a company, its potential for long-term growth, dividend payments, and other similar things. On the other hand, traders are affected by price changes as well as supply and demand.

    Let’s talk about the two types of markets we’ve already talked about.
    When you trade on the stock market, you try to match buyers and sellers. Your broker sends your offer to buy to the stock exchange, which then compares it to a seller’s offer. Once the price has been set, the exchange tells your broker that the trade is done. At that point, the transaction takes place. In the meantime, the bourse checks the information of the buyer and seller to avoid defaults. After that, the actual transfer of stocks takes place to end trading.

    The process used to take days, but digitization has helped cut the time down to T+2, or within two days of the transaction, and work is being done to get it down to T+1.

  • What Are The Indices In The Stock Market?

    An investor can use a stock market index to measure the performance of a market, like the Bombay Stock Exchange or the National Stock Exchange, or a sector, like the energy, infrastructure, or real estate markets. In India, SENSEX and NIFTY are the two most important stock market indices that are used to measure the market. Indian investors can keep an eye on how the index value changes over time and use it as a benchmark to measure how well their own portfolios are doing.

    Investors now talk about the stock market as having indices for different parts of the market that don’t always move together. Because if they did, there would be no need for different stock market indices. By learning how stock market indexes are made and how they change, you can make sense of the daily changes on the Indian market.

    SENSEX S&P BSE (also called BSE 30 or SENSEX)

    SENSEX was the first stock market index for equities. It was created in 1986. It is made up of shares from 30 companies that are listed on the BSE and are well-known and financially stable. These companies are a good example of the major industrial sectors of the Indian economy.

    How to measure the SENSEX

    SENSEX has switched to the market capitalization weighted method, which gives weights to companies based on how big they are. The weight goes up as the size goes up.

    Now, it is thought that the total market share was 100 points when the index was made. This shows the change in terms of % in a way that makes sense. So, if the market capitalization goes up by 10%, the index goes up by 10% as well, from 9 to 10.

    Let’s imagine that there is only one stock on the market. Let’s say that the stock is now trading at 200 and that its basic value is 100. If the price of the stock is 260 tomorrow, it has gone up by 30%. So, the index will go from 100 to 130, a 30 point jump. If the stock price goes down from 260 to 208, that’s a 20% drop. To reflect the drop, the SENSEX will be changed from 130 to 104.

    CNX NIFTY S&P (also called NIFTY 50 or NIFTY)

    The National Stock Exchange has 50 shares of NIFTY, which was started in 1996. It gives investors access to the Indian market through a single portfolio and includes 24 different parts of the Indian economy.

    NIFTY calculation

    The same formula that the Bombay Stock Exchange uses to figure out the SENSEX is also used to figure out the NIFTY. But there are three major differences:

    NIFTY is made up of 50 stocks that are actively traded on the NSE (SENSEX is calculated on 30)


    On both the SENSEX and the NIFTY, there is a separate index for each sector. This makes it easier for investors to keep track of changes in the market every day.

    Please think about this helpful advice: if you want to play on the stock market, you need to learn how to keep an eye on the scorecard, which is made up of two stock market indices. Zebu’s platforms give you real-time price moves about all of Nifty and Sensex’s prices. Open a trading account with us to find out more.

  • Things To Keep In Mind During A Market Correction

    Some investors are wary of the stock market and investing in stocks in general because these markets tend to be unstable. Investors say they’d rather be safe than sorry, so they put their hard-earned money into relatively safe investments like government-issued bonds and fixed deposits. People who say the stock market is extremely volatile aren’t completely wrong, because it can be. But it’s important to remember that investors and traders who know what they’re doing can get a good idea of how volatile the market is and limit any possible loss.

    While you analyse how the market is going to act, it is important you have the best tools in hand. At Zebu, we aim to offer our users the best trading accounts and the lowest brokerage for intraday trading to make their online stock trading journey easy.

    Correction in the stock market

    If you are a big investor and most of your money is in stocks or if you want to start trading and investing in the stock market, you need to know about stock market corrections. A “correction” in the stock market is when prices fall by at least 10% from their previous highs. Just the fact that prices are falling gives it a bad reputation. Even though this might make you feel nervous, it doesn’t always mean something bad. Most investors think that this is a normal part of trading on the stock market. In light of this, there are a few things you should know about corrections in the stock market.

    1. Types of corrections

    The markets can only go up or down. But when the market goes down, it can go down in different ways. For example, a “pullback” is a change of about 5% in market prices. A correction, on the other hand, is a little bit bigger, with a drop of 10–20% from previous highs. Then you have what is called a “bear market,” which means that prices have dropped more than 20% from their previous highs. This could go on for a longer time than a pullback or a correction. When you buy shares online, the good news is that bear markets don’t last as long as bull markets.

    2. Inevitable Corrections

    Corrections are the only way to reach a balance that makes sense for markets to stay in a healthy state. If markets go through the roof, it means that other parts of a country’s finances, like inflation, are in trouble. Because of corrections, investors can buy stocks at fair prices.

    3. Greater uncertainty

    During a correction, volatility, as measured by the VIX (volatility index), is thought to reach greater heights. This is because investors’ feelings change all the time, and a wide range of feelings affects market prices.

    4. Expectations

    Corrections in the stock market can’t be predicted, but they happen as often as the sun rises and sets. Also, a crash in the stock market doesn’t have a clear cause. Some stock market investors make predictions based on what happened in the past, but this isn’t a sure thing.

    5. A chance to make a long-term investment

    Long-term investors like it when the stock market drops because they can buy stocks at lower prices (called “discounts”) and they don’t mind keeping them for a long time. When the stock market as a whole falls, the prices of individual shares tend to fall as well. This is great for people who invest for the long term.

    6. Temporary

    Corrections are temporary. Most people agree that they may only last a little more than a year at the most. This is important to investors because months of hard work can go to waste in a single day, but if you look at the big picture, the highs of the stock market are higher than the lows of corrections.

    7. Dividends

    When you buy shares online, you should know that in the past, growth stocks have helped the stock market as a whole reach new heights. But stocks that pay out income or dividends can be a safer investment. These come from stable companies and give you dividends you can count on. They start making money after a few years. If you buy “dividend stocks,” you might still get returns that won’t change if the market goes down.

    No Reason to Worry

    A few changes here and there don’t matter much in the long run. In general, the market is always going up.

    Stock Market Trading and Investment
    You shouldn’t worry about a correction when you open a Demat account. Many investors do this, and it keeps them from having a healthy view of investing and diversifying their portfolios. You can learn and make money at Zebu, and we can help you make smart investments.

    At Zebu, we aim to offer our users the best trading accounts and the lowest brokerage for intraday trading to make their online stock trading journey easy. Check our website for more info

  • How Exactly Does Inflation Affect The Market?

    Most of the time, we think of inflation as a bad thing for stock markets. It’s not hard to figure out why. When inflation is high, the cost of living goes up and people have less money to spend. When inflation goes up, people earn less in real terms, and when inflation is taken into account, this means that their returns are lower. Second, when inflation goes up, interest rates go up, which also raises the cost of equity. There are also times when the effect of inflation on the stock market is seen as a good thing. So, what does inflation mean for the Indian stock market? Does inflation have anything to do with investments? When inflation goes up, do people tend to invest more or less? Most importantly, how does inflation affect the indices of the stock market, especially the Nifty and the Sensex?

     Let’s look in more depth at each of these points. As one of the biggest share broker companies Zebu has a huge team working to make your trading and investment journey as seamless as possible in our efforts to do that we offer the best trading accounts with lowest brokerage for every trade you make.

    1. How inflation affects the amount of money investors can spend What does it mean for prices to go up? Inflation is when the prices of goods and services go up over and over again. In India, the CPI inflation and the WPI inflation are used to measure both retail inflation and producer inflation. Usually, the CPI is a better way to measure consumer inflation because it is more accurate and has more to do with buying power. As inflation goes up, the value of the money you will get in the future goes down. That’s what the “present value” of money means. When inflation is 5%, your Rs.100 receivable from a year from now is worth Rs.95 today. When inflation is 10%, your Rs.100 receivable from a year from now is only worth Rs.90 today. With the same amount of money, you can buy less when your purchasing power goes down. This is usually bad for consumer-driven stocks like FMCG and consumer durables because people’s ability to pay goes down. This means that these companies will have to lower prices and make less money.

    2. Inflation affects interest rates, which in turn affects prices. What happens to bonds and stocks when the inflation rate goes up? Let’s start with bonds. When the rate of inflation goes up, so do interest rates or bond yields. We’ve seen this happen in the last six months, when inflation expectations have gone up and bond yields have gone up sharply by 125 basis points. So that the Yield To Maturity or total rate of return of these bonds stays about the same, when bond yields go up, bond prices will go down. When the price of a bond goes down, people who own bonds, like banks and people with mutual funds, lose money. This is why banks tend to lose money when interest rates go up.

    How about stocks? When both inflation and interest rates go up, the cost of capital goes up as well. The cost of capital is the sum of the costs of equity and debt. And when bond yields go up, the cost of running a business goes up. This means that the company’s future cash flows will be worth less. We know that future cash flows are taken into account when figuring out how much a stock is worth. When the rate of discounting goes up, it makes sense that the value of an equity will go down. In a strange way, higher inflation is good for stocks in the medium to long term. Even though inflation may be bad for bonds and stocks in theory, we can’t forget that it also has a good side. Usually, rising inflation means that GDP growth is getting better.


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    Even in the US and Japan, the big economic battle is all about getting inflation back to the 2% level. That is thought to be the level where growth will start to happen. In fact, if you look at the growth of the world and even India over the last 20 years, the GDP has never grown significantly when inflation was low. Even though ridiculously high inflation can make it hard to buy things, a certain level of inflation is needed to encourage businesses and producers. So the real problem is inflation which gets too high. At Zebu, we have a huge team working to make your trading and investment journey as seamless as possible in our efforts to do that, we offer the best trading accounts with lowest brokerage for every trade you make.

  • Key Monetary Policy Terms That Every Investor Should Know – Part 2

    In the previous article, we learned about 4 key monetary policy terms like LAF, CRR, Repo rate and reverse repo rate. Here are a few more important terms that you should know to understand MPC policies. Want to track your trades and investments smoothly? Then Zebu’s online trading platform is the answer to it. As the best Indian stock broker company we not only have the best technology but also have the lowest brokerage for intraday trading.

    5. Statutory Liquidity Ratio (SLR) The statutory liquidity ratio is the amount of money that banks must keep in liquid assets at all times. But banks can’t keep these funds in cash. Instead, they need to keep them in government securities, bonds, or precious metals. The CRR and the SLR both affect how much money commercial banks can lend to people who want to borrow it. If the RBI keeps these two rates too high for too long, banks will be less likely to lend money. It would be hard for people who want to borrow money and are in this situation.

    6. Base Rate This is the lowest interest rate that a bank will charge a customer when they lend them money. It is up to the bank’s management, and RBI has no say in the matter. But banks don’t usually lend money at that interest rate to people who want to borrow money. When lending money, banks usually charge an extra amount on top of this base rate.

    7. Long-Term Repo Operations (LTRO) In 2020, RBI took a revolutionary step by putting the LTRO tool on the market to control the repo operations. In LTRO, RBI lends money to banks for a set period of time, usually between 1 and 3 years, at the current Repo Rate. In return, banks offer Government Securities with the same or longer maturity period. In 2019, RBI’s six monetary policies have lowered rates by almost 135 basis points (bps), but banks haven’t even given customers half of the benefit. In the LTRO system, the RBI thinks that giving banks stable, longer-term cash at the repo rate can help them lower the rates they charge for loans to consumers and businesses while keeping their margins. LTRO is used to add money to the market and make sure that credit keeps flowing to the economy.

    8. Targeted Long-Term Repo Operations (TLTRO) This is the same as LTRO, but the main difference is that TLTRO uses the money borrowed from RBI to buy investment-grade corporate bonds, commercial paper, and non-convertible debentures. 9. Marginal Standing Facility (MSF) Marginal Standing Facility is a Liquidity Adjustment Facility (LAF) window that RBI opened in May 2011. It is the rate at which banks can borrow money from the RBI for one night in exchange for approved government securities. The question is: If banks can already borrow from the RBI through the Repo Rate, why do they need MSF? This window was made so that commercial banks could borrow money from the RBI in times of emergency, like when inter-bank liquidity runs out and overnight interest rates change a lot. So, the main goal of the MSF is to keep the overnight inter-bank rates from being too unstable.

    Now that you have a deep understanding of these MPC terms, the next time the RBI releases an update, you can see how the stock market is affected with some extra context. Zebu’s online trading platform is the answer to all your bad tech problems. As the best Indian stock broker company we not only have the best technology but also have the lowest brokerage for intraday trading.

  • Key Monetary Policy Terms That Every Investor Should Know – Part 1

    The Reserve Bank of India sets the rules for how the economy works as a whole. It is the demand-side economic policy used by the government of a country to reach macroeconomic goals like inflation, consumption, growth, and liquidity. It involves managing the amount of money in circulation and the interest rate.

    In India, the Reserve Bank of India’s monetary policy is meant to control the amount of money in order to meet the needs of different parts of the economy and speed up the rate of economic growth.

    The RBI uses open market operations, the bank rate policy, the reserve system, the credit control policy, moral persuasion, and many other tools to carry out the monetary policy. If any of these are used, the interest rate or the amount of money in the economy will change. Monetary policy can either make the economy grow or shrink. An expansionary policy involves making more money available and lowering interest rates. A monetary policy that makes money tighter is the opposite of this. For example, for an economy to grow, liquidity is important. The RBI depends on the monetary policy to keep enough cash on hand. By buying bonds on the open market, the RBI adds money to the economy and brings down the interest rate.

    Here are some important terms you should know if you want to understand how monetary policies work. Before we get on to understanding monetary policies there is one of the few things such as — technology that plays a huge part in investments. As an online trading company we offer the best trading accounts and the best stock trading platform to make your investment journey smooth.

    1. The Liquidity Adjustment Facility (LAF)

    It is a tool used by the Reserve Bank of India (RBI) to manage liquidity and keep the economy stable. LAF covers both Repo and Reverse Repo Operations. It was made by RBI after the Narasimham Committee on Banking Sector Reforms suggested it (1998). It helps keep inflation from getting out of hand.

    2. Repo Rate

    Repo Rate is the rate at which commercial banks borrow money from the Reserve Bank of India (RBI), usually against Government Securities. So, to keep things simple, if the RBI wants more money to flow into the economy, it lowers the Repo Rate, and vice versa. So, when banks borrow money at a lower rate of interest, they also lend money at a lower rate, and the opposite is true when RBI raises the Repo Rate. For example, if RBI lowers the Repo Rate by 25 bps, which stands for “25 basis points,” this means that RBI has lowered the rate by 0.25 percent. So, 1 bps = 0.01 percent . In most Repo operations, banks borrow money from RBI for one day at a time. Most believe that banks haven’t cut interest rates by the same amount that the RBI has done for banks. So, the answer is that the banks don’t have to all cut by the same bps. Even so, it’s up to the banks to decide whether or not to lower them, and if they do, by how much bps. The reason for this is that banks take into account different factors, such as their interest rate on other sources of funding, their NPAs (Non-Performing Assets) for the same period, their operational cost, and their cost of customer acquisition, the target segment they are lending to, etc.


    3. Reverse Repo Rate

    The Reverse Repo Rate is the rate at which RBI borrows money from banks for a short time and pays interest to banks for the same. When banks have more cash on hand than they need, they sometimes leave it with the RBI so they can earn interest on it. So, when the RBI wants to slow the flow of money through the system, it raises the Reverse Repo Rate. This makes it more profitable for banks to invest in Government-backed securities instead of lending money to risky market borrowers. The equation basically says that if the Reverse Repo Rate goes up, the interest rate on all loans goes up, and if the Reverse Repo Rate goes down, the interest rate on most loans goes down.

    4. Cash Reserve Ratio (CRR)

    Banks have to put a certain percentage of their Net Demand and Time Liabilities (NDTL) in the form of cash with RBI. This is called the Cash Reserve Ratio. This CRR has to be kept up-to-date with RBI every day. If it isn’t, the banks at that time will have to pay a fine and interest. RBI requires banks to keep this ratio in order to control the flow of credit in the market. By lowering the CRR, RBI makes more money flow into the economy. If it wants to stop the flow of money, it lowers the CRR. The interest rate that banks charge on loans has nothing to do with whether or not the CRR rate goes up or down. But if CRR goes up, the flow of money in the market goes down, and if the demand for credit doesn’t go down at the same rate, interest rates will have to go up.

    These are a few of the important terms that you should know about during MPC meetings. In the next article, we will share a few more of the MPS terms for your reference.

    As we all know, technology plays a huge part in investments. As an online trading company we offer the best trading accounts and the best stock trading platform to make your investment journey smooth.

  • What Is Your Risk Profile?

    You must recall your first bike ride. That is the kind of encounter you will never forget. But, while you were enjoying the ride, there is always that one kid nearby who clearly wished he hadn’t had to go through the horrible experience.

    So, while you were ready to accept the risk of riding a bike, your friend would have preferred to stand back and observe. Similarly, some people may be more willing to accept risks than others when it comes to investing. And your risk profile indicates how much risk you are willing to face when investing.


    Risk Profile

    Everyone has different financial objectives in life. That is, your risk tolerance is determined by your financial ambitions as well as your existing financial health.

    Let’s have a look at the various risk profile groups. There are three major kinds –

    The careful investor – this means that you want to take a low risk.

    The average risk-taker – this indicates that you are willing to take a small level of loss in exchange for higher returns.

    The aggressive risk-taker – this indicates that you are willing to take on more risk in exchange for a higher potential return.

    However, you are not required to fit within any of the categories. Depending on your investment objectives, you can choose to participate in all of them.


    Consider the following example.

    When it comes to keeping an emergency fund, you want to invest in something that will provide you with security and liquidity rather than large profits. In that instance, you choose a low risk, low return profile, showing that you are cautious.

    However, if your financial goal is retirement, which could be 25 years away, you can be an aggressive investor. This is because you want to earn a good return over a long period of time. In this case, the high profits would be directly proportional to the risk. Furthermore, because your investment horizon is decades away, risks can be handled in the long run.

    Start by taking care of emergency funds and investments with low-risk investment options. Then, move on to the funds needed for your children’s education and retirement. Next, adjust your risk appetite to invest in stocks building your wealth.


    You can control investment risks in two ways:

    Invest for the long term.
    Regularly invest little sums.

    Some investors try to outperform the market in a relatively short period of time. However, history has shown that short-term investments do not generate the same level of return as long-term ones. Long-term investment works because bull and bear markets provide wonderful opportunities to ride through the highs and lows of cycles while investing in high-return, high-yielding assets.

    Investing in smaller quantities allows you to benefit from rupee cost averaging. This technique ensures that you purchase more shares (or units) when prices are low and less shares (or units) when prices are high. As a result, you can average out your investment costs and deal with market volatility.

    Furthermore, adopting a disciplined approach, such as investing little sums on a regular basis, helps create excellent financial habits that will undoubtedly come in helpful in the long term.

    Investing tiny amounts over time might help your investments develop. All owing to the compounding power. Earnings from stock investments are reinvested, allowing your investments to generate even greater income. So, even if you start with a tiny amount, the longer your money stays invested, the greater the chance for growth and compounding.

    But did you know that you may utilise both of these methods to reduce risk in high-risk investments?


    Here’s how it works:

    If you have a substantial money to invest in a high-risk investment, consider putting it in a low-risk investment vehicle such as a debt fund. You can then gradually transfer tiny amounts of money from that fund to a high-risk investment vehicle.

    For example, if you wish to invest Rs. 10 lakhs in equities stocks or funds, you can put Rs. 1 lakh into equity stocks or funds in the first month and the remainder in a short-term debt fund.

    The remaining funds can then be transferred in small increments over the next few months.

    This way, you may manage market volatility while still earning high long-term profits.