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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
A mindful investment that balances risk and reward helps you manage income and save money for the future. To know about the management of a balanced and diversified portfolio, go with the flow of the blog.
Updated On: 28th July, 2023
Financial management is among the priorities to lead a stable and financially independent life. It helps you properly manage your income and expenses in the long run. Along with this, the right investment strategy builds a corpus of funds for the future.
A balanced investment portfolio is one where assets are allocated to mitigate the risk. Generally, the diversified portfolio includes 60% stocks and 40% bonds. Cash or money market components can also be included in the portfolio to add liquidity. Moreover, the management of a portfolio also depends on your age, as younger investors usually have higher risk tolerance along with the time to recover from losses.\
The risk-return tradeoff depends broadly on three major factors, including the investor’s risk tolerance, the investor’s years to retirement, and the potential to replace lost funds. Along with this, time also plays a crucial role in determining the level of risk and reward. For investors, the risk-return tradeoff is an essential component of every investment. Therefore, you must have a look at the following section to calculate risk and return.
You can use Alpha Ratio, which refers to returns earned on investment above the benchmark return. Therefore, it measures excess returns from the benchmark index. To calculate alpha in an easier manner, subtract the total return from a comparable benchmark in its asset category. For asset investments that are totally similar, calculate alpha using Jensen’s alpha, which uses the capital asset pricing model as a benchmark.
The beta calculation measures the expected move in stock relative to the overall market. To calculate beta, you need to divide the variance by the co-variance. A beta greater than 1 shows that the stock is more volatile than the broader market. However, a beta of less than 1 suggested a stock with lower volatility.
A Sharpe ratio determines whether the risk is worth the reward. To calculate the ratio, you must divide the adjusted return by the level of risk or its standard deviation. While comparing similar portfolios, the greater the Sharpe ratio, the better, as it shows an attractive risk-adjusted return.
With proper financial planning and investment, you can lower your future financial burden. Hence, it is essential to have some tips that can help you in your investment journey.
If you add only equity and banking stocks, you take a huge bet on interest going down. One better way to manage risk is through SIP. Under SIP, you do not commit your fund in one single go and keep your options open. In addition, SIP is phased and hence, provides you with the benefit of rupee cost averaging. Thus, it reduces the overall cost in a volatile market.
Saving plans are also an integral part of financial planning as it provides systematic and disciplined investment for short-term as well as long-term financial goals. It is a life insurance plan focused on accumulating wealth for the future. Investment in saving plans also helps in navigating medical emergencies, post-retirement expenses, or any rainy days.
It Is not always the case where higher risk entails higher return. Therefore, you must choose the risky investment depending on your risk potential. Hence, it is always advised to diversify your portfolio to reduce risk by combining assets. Moreover, there are no investments that guarantee return; hence you must tradeoff risk and return.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
