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Risk and return are two sides of a coin Risk and return are two sides of the same coin. With high return comes high risk and vice versa. One needs to take the needed risk to earn the excess return. A person investing in an FD as he thinks is safe but is worried about inflation eating up his returns or a person investing in an equity mutual fund who gives knee jerk reaction to every market move isn’t investing according to their risk appetite. Clearly, the first person is willing to take more risks and the second one isn’t. Understanding one’s own risk profile is very important before they start investing. Also, what may suit one person may not suit the other. Each individual has a different capacity for risk. Just because a person is investing in a low-risk product doesn’t mean the others also have to invest in that. The herd mentality doesn’t work for investing. What is the risk? Risk refers to the degree of uncertainty or potential loss in an investment. As risk increases inves...

Risk and return are two sides of a coin   There are two sides of the same coin, Risk and return. High risk comes with high return and vice versa. The necessary risk to earn the excess return must be taken. A person investing in an FD as he feels is secure but worried about inflation eating up his returns or a person investing in mutual equity fund gives knee jerk reaction to any market change that doesn't invest according to their risk appetite. The first person is clearly willing to take more risk, and the second person is not. Once they start investing, knowing their own risk profile is very important. In addition, what one person may suit may not suit the other. Each individual has a different risk capacity. Just because an individual invests in a low-risk product does not mean that the others also have to invest in it. The mentality of the herd does not work to invest. What is risk? Risk refers to the extent of an investment's uncertainty or potential loss. As the ris...