Making your investor profile

Making your investor profile

Investor profile is all about knowing your preferences in investment decisions. Before you start investing, it’s important to know the type of investor you really are. More often than not, we assess our strengths and weaknesses differently. Going through a formal investment profiling would help in creating a portfolio for the long term without having to re-evaluate every now and then.

So, making an investor profile depends on various factors like risk tolerance, investment goals, investment time horizon and changing financial circumstances and needs.

To determine your investor profile, you could ask yourself a few questions that can help you self-evaluate.

▪ Goal-based profiling

This can be understood by taking your income and expenses into consideration and then evaluating your disposable income. Calculating your disposable income is important. It tells how much money you can invest every month.

Once that is evaluated, there are a couple of funds that need to maintained. They are:
o Contingency fund with at least 12 months’ expenses
o Medical emergency fund for an illness which may or may not be immediately covered by health insurance
o Child’s education fund
o Retirement fund

There is not much you can do about your fixed expenditure like EMIs or other loan repayments. However, you can take stock of your discretionary expenditure and create a headroom for investment.

▪ Investment horizon

This can be broadly classified as short-term, mid-term or long-term based on your tenure of investment.

o Short-term investments are made for immediate goals in the next three years. These investments need to be kept handy and not be prone to volatility. Thus, it needs to be kept in a cash or liquid fund for easy access. Such investments are usually done to meet regular cash flow requirement and emergencies.

o Mid-term investments can help you meet your financial goals in five to seven years. Since the tenure is not long enough, your investment can be parked in medium-term debt investments or bank fixed deposits or even balanced funds because market volatility does not affect its liquidity after three years.

o Long term investments are for more than 10 years or indefinite timeline. Thus, equity exposure can be taken for long term investment needs.

The earlier you plan for your investments, the better it is so that it can be planned well ahead and the power of compounding can really work and do wonders for your portfolio!

▪ Investment profile

Once the disposable income and the investment horizon is known, the very objective of the investment needs to be ascertained. To determine an individual’s investment profile, his risk capacity, appetite and tolerance need to be known.
✓ Risk tolerance is the amount of risk you can take in your investment portfolio without losing your sleep over the volatility of the portfolio
✓ Risk capacity is the amount of risk you can afford to take so that your financial goals are not jeopardised.
✓ Risk appetite is the amount of risk you need to take in order to fulfill your financial goals.

The combination of all three (as depicted in the picture) is the risk profile of the individual.

Tip: You need to determine your risk-taking capacity and investment objective together so that you can maximize returns on your investment portfolio without taking too much risk exposure.

▪ Investment experience

If one has a considerable experience in investing, his risk-taking capacity is more accurately determined than others since he knows what is expected from each investment. For new investors, it is inevitable that a new investment option needs to be explored bone-deep before taking the plunge.

Age is often synonymous with lesser risk since time horizon is low.

▪ Asset allocation

Asset allocation is all about choosing an investment strategy and products based on your risk appetite.

Please note that it’s important to review your asset allocation once a year as it can change with time due to change in your investment goal and risk tolerance.

Equity is healthy and good for your portfolio but so is debt. A mix of the two blended with your investment objective and horizon can be ideal. So, monitor your ideal asset allocation at all times, irrespective of the market situations and you will see a marked difference in your overall portfolio.


In order to excel in your investments, you need to be completely honest in your evaluation of your investor profile. Self-evaluation can be quite tricky at times and thus professional help can help you define your financial goals. You need to assess your investment needs and then design an investment strategy more appropriately.

Disclaimer:  Investment in securities market are subject to market risks, read all the related documents carefully before investing.


Why plan taxes before investing

We read in the previous section that tax planning can help you save a lot of money. But tax planning can be truly efficient if it’s undertaken before investing and not after—a mistake that many make. Only then can you enhance your ‘real return’ and ‘post-tax yield’—your returns after being adjusted for inflation and tax. Of course, while taxes shouldn’t drive your investment decisions, it is important that you consider it before investing. Let’s understand why: 1) Tax planning helps you understand tax exemptions, deductionsInvestments have different tax angles. Notable are tax exemptions and deductions. And before you take an investment decision, it’s important that you know about these. This can help you make a better, more tax-efficient decision. Tax ExemptionsAs you may know, not all income is taxed. The same applies to investments too. For example, the interest payments from Fixed Deposits are taxable as per your Income Tax slab rate. But dividends from Mutual Funds or Insurance payouts are exempt from tax—they attract zero tax. And while you may report them in your Income Tax filing, they don’t get added to your taxable income. Every investment option has its own tax rules. If you get your tax planning done in advance, you will know what investments fit you the best from a tax point of view. This can mean the difference between high tax liabilities and tax savings. Tax DeductionsMany confuse exemptions with deductions. In truth, they can’t be any different. Exemptions, as we read earlier, are when the income is not taxed at all. Deductions, in contrast, is an expense that lowers your taxable income, thus reducing tax liability. Now deductions can be expenses of all kinds—towards assets, investments, etc. The most notable tax deductions in India are the investments under Section 80 of the Income Tax Act. If planned wisely, these can be used for maximum benefit.i. U/S 80C: Investments like Tax-saving Mutual Funds (ELSS), 5-year Bank/Post Office Fixed Deposits, Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), etc. can help you get a tax deduction of up to Rs 1.5 lakh every year. Your expenses towards Life Insurance and Home loan repayment too can get you a tax deduction of Rs 1.5 lakh under this section. ii. U/S 80D: All premium paid towards medical insurance can get you an additional tax deduction of up to Rs 60,000 in a year. This amount, however, includes the premium paid for policies that cover you, your spouse, dependent children and parents. iii. NPS: Contribution to the National Pension Scheme or NPS can get you an extra tax deduction of Rs 50,000 over and above the Section 80C limit.iv. Home Loan: Under Section 80C, you availed a tax deduction on the ‘principle repayment’ of your home loan. You can get an additional tax deduction of up to Rs 2 lakh on the ‘interest repayment’ of your home loan as per Section 24 of the Income Tax Act. First time buyers can get an extra deduction of Rs 50,000. 2) Even when taxed, some investments are more tax efficient than othersInvestments can be taxed or get you exemptions/deductions at three levels – the initial investment, regular interest or dividends generated throughout the tenure of the investment and the final stage—when you sell the investment to pocket profits. So, when you consider an investment, look at all three tax points. Some investments, for example, have an EEE tax policy. This is when it is tax-free at all three stages. Stock market investments are an example of such investments (if you hold it after 1 year). It does not get you an initial tax deduction, yet, when taxed, it turns out to be more tax efficient. 3) The tax-efficiency of an investment depends on the tax bracket you fall in It’s not just about how the investment will be taxed. What also matters is the tax bracket you fall in. Imagine if there are two investment options that give you equal returns. But one is taxed as per your Income Tax slab rate. The other has a fixed tax rate of 20%. In such a case, two people can make opposite decisions. Someone in the 10% tax slab would choose the first option. After all, the slab rate is lower than the 20% tax rate. But a high-networth investor (HNI) may opt for the second option. After all, for the HNI, the 20% tax rate will be welcome. This is why the post-tax yield varies for investors considerably even though the amounts invested, tenure and the products might be the same! Other important points to note about Investments and Taxes:- You may need secondary sources of income. Investments can be one of the sources. In such cases, it’s important to know your tax liability first. Income from your investments are not always taxed equally. For example, if you invest in a bond directly, then you may be taxed for the interest payments. But if you do so via a Debt Fund, the income you receive through dividends are not taxed in the hands of the investor. - How long you plan to invest also has tax repercussions. This is because tax rates differ as per holding periods too. For example, if you invest in stocks and sell before a year, then you have to pay a 15% tax. But if you sell after a year—even if it is the 366th day—then you pay zero tax. - You may already be getting enough tax deductions. In such cases, you choose investments on different parameters. But you need to know about your tax status in advance. A 5-Step approach to building an efficient investment portfolio through tax planning Step 1:Consider your income, the various tax allowances and exemptions that you can avail so that your gross taxable income and tax liability is reduced. Step 2:Choose expenses and investment products that can get you a tax deduction under: a. 80C (ELSS, EPF, PPF, Life Insurance premium, Bank FDs, NSC, etc.)b. 80D (health insurance)c. 24 (Home Loan interest repayment)d. 80CCD(1B) (additional Rs 50,000 deduction through NPS)Step 3:Consider taxation at the time of maturity, sale or redemption. Then, choose the investment with the least tax liability.Step 4:Hold on to investments for longer tenure to avail extra tax benefits. For example:• Real estate: Hold on for over 2 years to get indexation benefit. You can then purchase 54EC bonds for Rs 50 lakh to reinvest your profits and reduce tax further.• Debt Funds: Redeem after 3 years to get indexation benefit. You then get taxed at 20%. If you sell before 3 years, then you will be taxed as per your Income Tax slab rate.Step 5:Offset capital losses against capital gains from the same type of investment. A last wordMeaningful tax planning can create a significant difference to your investment corpus in the longer run.

read more


What is a ‘good’ return on your investment?

‘Return’ is the first word that comes to mind whenever you hear about an investment option. Return is the measure of performance and efficiency of an investment option. Everyone wants an investment with a better return potential but with underlying risk associated with the same. Every investment gives return in different ways. Savings and bonds give return in the way of interest. Stocks and mutual funds pay out dividends. Instruments like stocks, bonds, mutual funds and ETFs also appreciate in value and provide capital gains when sold.What is a ‘good’ return on your investment?Everyone wants to get good returns. What is good to one may not be good enough for another. Categorization of good and not-so-good returns are derived from comparative analysis. Returns of various products are compared in consideration with features, time horizon and investor portfolio.- Benchmark performance:For example, mutual funds are compared based on their previous performances and their benchmarks. If a mutual fund is able to derive a sustainable and good alpha, i.e. performance over its benchmark, while keeping the beta (risk) low, then it is a “good” return. A benchmark is a standard set against a mutual fund so that it can be measured. Since 2012, SEBI has mandated mutual fund houses to have a benchmark to measure its relative performance. For example, if the Sensex has given a return of 12.65% in the last three months and a particular mutual fund has given 14.75% annualised return, then the relative performance is 2.1% more than its benchmark.- Past performance:Previous performance is often considered while making future investment decisions. It may not be the all-important feature, but you should give it a look before opting for a specific fund.- Consistent Returns:Some say that penny stocks can provide “good” return. But so is gambling -- if you get lucky. But what if you don’t? That’s where “good” investments come into play. “Good” return is consistent returns over a longer tenure. Not just returns!Returns are surely important but it is not the only factor that needs to be considered. Higher the return expectation, higher the risk. So, if you are not too keen on taking too much risk in your investment portfolio, then you would have to settle for lower returns and vice versa. If you need high returns, you must accept the volatility of your investment portfolio.However, if you have time on your side, you can opt for high returns without risking your portfolio since the time horizon eases out market fluctuations. So, to generate a good return, it makes most sense to consider all the following points of investing fundamentals mentioned below.✓ Selection of right investments based on one’s risk appetite, investment goals and asset allocation✓ Understanding before investing ✓ Having a long-term perspective for investment goals fulfilment✓ Diversification of investment portfolio ConclusionReturns are important but it is not the be all and end all of investments. It is more important to stay disciplined because it can help you to achieve your financial goals Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

read more

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Private Equity Fund – What is Private Equity & How does it work?

    What is Private Equity?When it comes to investing, most of the investors opt for the traditional route. They invest in bonds or stocks or purchase mutual funds. While for some others, private equity is an appealing investment option. But what is private equity fund and what is the private equity fund structure? How can one invest in it?In this article, we explain private equity fund meaning in depth to give you a better understanding of the concept. What is Private Equity Fund?Private equity is a general term which describes different kinds of funds pooling money from several investors to acquire stakes in companies. Such a private equity fund may amass millions or even billions of dollars to directly invest in companies. These companies are not publically listed on the exchange or traded. So, a private equity fund either directly invests in private companies or engages in buyouts of public companies, resulting in the delisting of public equity. Private Equity Fund StructureA private equity fund comprises of Limited Partners (LP) who own 99 per cent of the shares in a fund. They have limited liability. The remaining 1 per cent is owned by General Partners (GP) who have full liability. They are responsible for executing and operating investment. Understanding What is Private EquityPrivate equity involves investing in unlisted companies at different stages of their development. This is done with the objective of creating an added value to these companies. After some years, such companies can be sold with a significant capital gain. Simply put, private equity funds are created with the intention of raising money from several investors to deploy it progressively by acquiring companies and helping them grow more profitable.Since private equity investment directly invests into a company, it requires a large capital outlay to gain a significant level of influence over the company’s operations. This is why not every investor can afford to invest in private equity. The minimum amount of capital required varies depending on the fund and the firm. Some funds have a $2,50,000 minimum investment requirement, while others can run into millions of dollars. Therefore, most of the private equity firm industry comprises of large institutional investors such as pension funds. Or, they may be funded by a group of accredited investors. How Does Private Equity Work?Private equity firms raise money from accredited investors and institutional investors to invest in companies through the following investment strategies:• Distressed FundingThis is also known as vulture financing. In this type of private equity funding, the money is invested in troubled companies with underperforming business assets or units. The funding is aimed at making necessary changes to the operations or management for a turnaround of the company. This could mean selling their assets for a profit ranging from patents to real estate and physical machinery. Mostly, companies that have filed for bankruptcy fall in this category and require this type of funding. • Leveraged BuyoutsThis type of private equity funding is the most popular investment strategy. Here, the private equity firm buys out a company completely with the objective of improving its financial and business health. Later, the company can be sold at a profit to an interested buyer or made public by conducting an Initial Public Offer. The firm uses debt as leverage to buy out the company so it does not have to spend the purchase price at once. The money from various investors can be used to improve the company’s earnings and create a higher return. • Funds of FundsAs the name suggests, this type of funding invests in other funds, typically hedge funds and mutual funds. The aim of the FOF strategy is to achieve broad diversification and minimal risk. For an investor who cannot afford the minimum capital requirements in such funds, FOF serves as a backdoor entry. • Venture CapitalVenture capital investments focus more on investing in newer companies or startups that are on the verge of developing a new technology or industry. This type of funding can be done at different stages of a company. For example, seed financing funds a company to scale an idea from its prototype stage to the development of a product or a service. Similarly, an early stage financing can assist the entrepreneur in helping his company grow. Or, Series A financing which can enable an entrepreneur to actively compete in a market or create one. Advantages of Private EquityPrivate equity offers multiple benefits to startups, businesses and companies. It provides them access to liquidity instead of having to rely on traditional forms of financial mechanisms such as listing on public markets for funding. Another huge advantage of private equity funding is that companies can operate away from the glares of public markets. They are not required to submit quarterly reports to the outside world and can undertake a long-term approach in bettering their fortunes. Certain forms of private equity financing such as venture capital funding can be ideal for early stage companies who do not wish to take high business loans. What are Some Myths Regarding Private Equity Firms?Here are some myths surrounding private equity firms which are not true.• Private Equity Firms Strip A Company’s AssetsMany analysts believe that private equity firms are able to turnaround a company by stripping it of its best assets. In reality, private equity firms have been known to create added value to a company by expanding their geographical footprint. Or, acquiring and integrating smaller competitors, and repositioning an out-of-date concept into a trendy product. • Private Equity Firms Cut CostsPrivate equity firms do cut costs, but only the unnecessary ones with a view to reinstating the money into other functions. For example, research, marketing, sales, and more. This can help support the company expansion with a lesser capital outlay.• Investor’s Money Is Blocked For 10 YearsGrowing companies can take time. Thus, investments made into private equity funds are generally seen as long-term or illiquid. However, it is not rare that a company can be sold off after a 4 or 6 year holding period. Private funds usually have a 10-year maturity, but it is possible that all the money gets invested in the first 5 to 7 years of the fund's life. Private Equity Fund v/s Other Kinds of EquityPrivate equity is not traded on public exchanges whereas equity through stocks is publically traded. In addition, private equity firms only invest in failing companies that need a turnaround or strong performing companies that can further improve margins and efficiency. For other kinds of equity, investors can invest in all types of companies. Private equity firms are attractive investment vehicles for institutions and wealthy individuals. Private equity operations at IndiaNivesh Ltd. are aimed at creating value for our investor clients seeking growth opportunities in unlisted businesses at an early stage. You may get in touch with our team of highly-knowledgeable fund managers to know more about investing.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • Stock Market Investment - Do’s and Don’ts of Stock Market Investing for Beginners

    Do’s and Don’ts of Stock Market Investing for Beginners Making money in the stock market is an art. Often people enter in the share market and invest money without a disciplined approach. Likewise, beginners often speculate and bet on the stock hoping that the price will go up. However, this is not the right approach for stock market investment. To help the beginners with stock market investment, we suggest some of the stock market investment tips that they can follow to be successful in the market. This mini stock market investment guide will enhance your knowledge on the basics of the market and make you an informed trader or investor. Things to do in Stock Market• Learn and InvestAs a beginner, the first thing you must do is to acquire sufficient stock market education and learn more about it. Self-education is the best education here. Start with the basic concepts and information. By doing so, you will understand how to do stock market investments. • Take Small StepsAs a beginner, you must start with small investments in the stock market. When you get sufficient knowledge and confidence, gradually increase your stock market investment. This approach will make you a successful and better investor in the long run. • ResearchOne of the important stock market investment advice for beginners is to invest in shares after a good research. Beginners must research about the fundamentals, financials, management and many other areas before making any investment. • Keep a Check on EmotionsStock market investment requires a practical approach. Decisions taken on the basis of emotions can prove to be fatal. Often beginners make decisions out of panic and book losses. This must not be done and a check on emotions in the stock market is compulsory. • DiversifyAnother important stock market investment tips for the beginners is to diversify their portfolio. It is always recommended to not put all your eggs in the same basket i.e. not invest all money in a few stocks. Diversifying the portfolio protects you from loss in one sector against profit in another sector. • Invest Surplus OnlyIt is always advisable for the beginners to invest only their surplus money in the stock market. This is because the stock market is volatile, risky and returns are not guaranteed here. Therefore, only that portion of money must be invested in the market which will not affect your regular lifestyle. • Have Investment GoalsThe investor must invest in the stock market with an investment goal. It is important that the beginners must have a future plan in mind while investing. He must know what he expects out of his investment and the time period of the investment. An investment with a goal helps you in building a good portfolio and creating wealth for the future. The above-mentioned are a few things that a beginner must do in the stock market. Now let us learn about the things that a beginner must not do in the stock market. Things Not to do in Stock Market• Don’t Invest on TipsAn important stock market investment advice for beginners is that they should not buy shares on the basis on tips. Any recommendation or tips from near and dear ones must be ignored. Beginners should invest in shares only after conducting their own research and analysis about the company. • Avoid Herd MentalityNever invest in shares looking at what most of the people have purchased. It does not matter how much returns others have generated with the investment. Your investment decisions must be based on your own research rather than following what the crowd is doing. • Avoid Unnecessary RisksAs a beginner, you are learning about how to do stock market investments. You must avoid investing in high risk shares in the hope of high returns. The greed of earning quick money often forces you to put money in stocks that have lot of associated risks. • Avoid Stocks You Don’t UnderstandAnother important stock market investment tip for beginners is that they must avoid investing in stocks which they don’t understand. Beginners must take time to understand the business of the company and invest only after knowing its full profile. Investing after analysing the future performance of the company will help you in making higher returns. • Avoid Overtrading As a beginner and an investor in the stock market, your aim is to invest money for the long term. You must avoid taking intraday trades because that is for people looking for short term gains. Moreover, overtrading often results in capital erosion and huge losses. As an investor, you must analyse the company and take a long term bet. The above-mentioned points act as a stock market investment guide for beginners. If you are a beginner and want to invest money for the long term, you can open a demat account with IndiaNivesh. Our in-house professionals and experts help you in making a diversified portfolio after understanding your risk appetite and duration of the investment.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • Risk vs Return: The tradeoff

    The risk return tradeoff is a principle of investment, which means that higher the risk in the portfolio, higher is the potential return possibility. However, high returns from a risk return trade off is not always guaranteed.To clarify the risk and return trade off and understand what is risk return trade off with an example, any investment with high risk may have a chance of high return, say, equity stocks. So, if the risk in an investment is high, then the possibility of return is also high, around 20-25% annually and may not be limited to just 6-8%. It basically means that the investment return is volatile and may fluctuate depending on market movements. However, the average return of equity would typically be 12-15% annually.On the other hand, if the risk in any particular investment is low, for instance in a fixed bank deposit, the chances of getting 20-25% annually may never happen. The returns will be more in the 6-8% bracket. However, it also means that the return can never become lower than 6%, especially negative. This is the trade off between risk and return. Hence, you need to take greater risks if you need a higher return on your investments. The concept of risk return trade off in finance is a widely accepted fact, but the associated risks with the portfolio are often neglected. Risk-return trade off in financeAs far as investing is concerned, each and every investment has an associated risk with it. When you are looking to choose an investment, you need to look into its risk too so that the overall risk of the portfolio is managed accordingly.   There are multiple risks associated with an investment product. Some of these include:1. Inflation risk reduces the purchasing power of cash reduces over time.2. There is credit risk because credit rating of bonds/papers, etc. determine the value of the productLiquidity risk arises when selling an investment product at the right time can be a hassle. 3. There is tax risk as governments usually make taxation changes every year. 4. Concentration risk occurs when you buy too many of a particular investment product.5. There is market risk because equity market is volatile. Risk levels of asset classesTo sum up You need to find the right blend of risk and return. This is quite an important task because the return needs to be in line with your long-term financial goal. However, it is equally important that you don’t ignore the risk factor. The investment option you choose should match your risk appetite.   Disclaimer: Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.

    read more