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Choosing an Investment product is the most difficult decision for an Investor. Investments in products are nothing less than a marriage wherein a number of factors need to be considered before one takes the final decision: Return: This is the first factor to be considered while making an investment decision. Depending on the returns one expects to earn, the investment is chosen. Equities offer higher returns compared to deposits, but they also have a higher volatility associated with them. One cardinal rule for investors here is, Higher the Risk, Higher the Return one can expect on his investments. Risk: Risk refers to variability in returns. The risk associated with an investment is an equally important factor and is ignored by investors at times. Investors, sometimes, choose a product with a higher return without looking at the associated risks. Ex: If Product A offers a 15% return with an 18% risk(measured by Standard deviation) and Product B offers 16% with a 25% risk. Though Product B yields a higher return, Product A is better than Product B on a risk-adjusted basis. Investment Constraints The amount of risk that an investor can take in search for returns is affected by the following factors:
