Risk appetite and risk tolerance are one of the most important criteria in selecting investments. Let’s look at how to match them in Smallcases.
One thing has become certain in the market situations over time- there is no such thing as a “free lunch.” Returns on your investments, like anything else, have a cost. To achieve large gains, you must be able to tolerate severe volatility. In other words, a high rate of return on your investment is a reward for taking on a high level of risk. This is referred to as the risk-reward trade-off.
What is Risk Appetite?
People frequently invest in products offered by relationship managers and investment agents strictly on the grounds of the rate of return. However, there are other important indicators that investors tend to overlook at this stage. Risk is one of the essential considerations of all. Before purchasing a smartphone, we give it a lot of thought. We look at the features, performance, and, of course, the pricing. We would never buy phones costing Rs 50,000 even if we were merely price sensitive. We want to create a balance between the utility they (smartphones) provide and their cost. Similarly, the risk is a significant consideration in investments, along with return potential. Almost all investment products are subject to some level of risk; only the degree of exposure varies. As a result, before you naively buy financial items, it’s critical to grasp your risk tolerance levels.
The next thing that comes to our mind is: how can we assess our risk appetite and risk tolerance?
The majority of investors make the error of conflating these two categories (risk appetite and risk tolerance). These are two distinct concepts that must be examined separately before making investing decisions. Risk appetite refers to your willingness to take risks, whereas risk tolerance refers to your ability to do so. You may enjoy sky diving, bungee jumping, and other extreme sports, but you must be physically fit to participate in them. Similarly, as an investor, you may be a risk-taker who would not hesitate to invest in high-risk ventures. However, before making investing selections, it is critical to analyze your current condition and commitments well into the future.
What actually is Smallcase? Should you use these to invest in stocks?
Individual stocks can be bought through a broker. But the onus to make the stock picks for the portfolio lies with the investor. ETFs are funds that ape an index, but the composition of the fund is restricted to the chosen index components. Here is where Smallcases find their footing. A new-age investment avenue, Smallcases are bucket investments consisting of carefully chosen stocks and ETFs, handpicked and managed by professional fund managers, and made available to you as theme-based investments. Sebi-Registered Research Analyst such as TejiMandi and brokerages are now allowing investors to purchase the entire ready-made portfolio of securities based on specific themes or ideas in one transaction.
Let’s look at an example to better grasp Smallcase. Ms. Shravani believes in the pharmaceutical industry and intends to invest in it. She prefers to invest in a variety of companies rather than a single pharmaceutical stock. A Pharma Tracker Smallcase is a good alternative. A Pharma Tracker Smallcase has nine pharma stocks in it. As a result, Ms. Shravani can diversify her portfolio by investing in this Smallcase. Likewise, different Smallcases represent varied concepts, strategies, and themes.
Here’s a quick peek at TejiMandi’s Smallcase offerings:
• The Multiplier – a concentrated portfolio of small and midcap stocks that are likely to show non-linear growth.
• The Flagship – a concentrated portfolio of 15-20 stocks that blends short-term tactical bets with long-term winners.
Smallcases are accessible through your broker’s login on the Smallcase website, the Sebi-Registered Investment Advisor’s website, or the smallcase microsite platform that your RIA may have set up. You may also use the app if available. Next, pick a theme that appeals to you. You can examine which stocks are in the portfolio and in what proportions, as well as the investment strategy. The Smallcase can be customized by adding or removing stocks.
How to set the right Risk Appetite in Smallcase
• Invest the portion of your money that you’re not worried about in Smallcases.
Consider Smallcase-investing if you have some spare cash that you can invest without thinking about the principal amount. Investing in equities comes at a significant risk, even if the Smallcase managers are keenly overviewing your portfolio and performing risk management. You must refrain from worrying about short-term market swings with these investments. Regularly examine your portfolio’s alignment with your goals and Rebalance as recommended and necessary. This can help your asset portfolio stay on track and in your comfort zone.
• Have a strategy for investing that is based on your objectives.
The greatest technique to follow, whether for a first-time investor or an experienced investor, is a goal-based investment. Sort your objectives into three categories: short-term, medium-term, and long-term. This will assist you in deciding how to allocate your assets. Invest In Suitable Smallcases that you believe will play out in the markets near term or offer capital protection for all short-term goals. Roughly 10% of your portfolio may be invested in Smallcases with a suitable risk profile that is medium-term investments. All of your long-term assets can have a little more risk exposure because returns tend to be higher over time while the risk is averaged out.
Therefore, before you begin investing, break down your objectives and prioritize them according to their timeliness. Even if you have a low-risk tolerance, if you invest in Smallcases for the long term, you won’t have to worry about short-term market fluctuations.
• Knowledge
Knowledge is one of those rare assets that will never depreciate in value. Knowing everything there is to know about something raises your consciousness. Having a comprehensive understanding of the positive and negative repercussions will increase your risk appetite. In his early stages of evolution, the man had little knowledge of fire and was just as afraid of it as any other animal. However, as he saw the beneficial changes that fire might bring to his life, he began to use it to his advantage.
Smallcases, like that offered by TejiMandi, may just be that fire for the investment world. Read about us or call us for a quick chat on the customized Smallcases we have handcrafted for you. Be aware and make informed investing decisions.
• Your previous experience:
If you have had a positive encounter with a product in the past, you are more likely to buy it again. You won’t mind betting on dark horses if you’ve had success beating champions in derbies. The same is true when it comes to investments. Those who had previously obtained substantial high returns would be willing to take on more risk. However, does it sit with your changed risk profile?
Offer Smallcases a chance, sign up with the Teji Mandi smallcase today and experience the magic of managed portfolios that is bound to encourage you to come back for more. Gain access to “Affordable PMS” – Start with as low as Rs149/month and embark on your changed investment journey today.
The Bottom Line
Investors need not worry about striking the right balance of risk and reward when it comes to Smallcases. There is a perfect product for everyone’s risk profiles. You only need to find it.
Smallcases are a collection of stocks and/or ETFs that represent a common subject, concept, or approach. They entail allocating varying weightages to the constituent equities and then tracking the theme in order to maximize the investor’s gains. Several professionals in the new era of investors have less free time as a result of work pressure or other obligations. This is one of the main reasons why Smallcases have been so popular recently: an investor can choose from a variety of pre-curated bundles and then not have to manage or analyze the performance on a regular basis. Another advantage is that they are a low-cost approach to creating and diversifying your portfolio. Finally, this platform has a high level of inclusion. For beginning investors, there is a Smallcase that is specifically tailored to meet their needs and risk appetite.
