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Measuring Risk Appetite

Risk appetite and risk capacity are two concepts that need to be understood clearly before making investment decisions because they help determine the amount of risk that should be taken in a portfolio of investment

May 06, 2011 4:41 IST | India Infoline News Service

Risk can be defined as the possibility of an undesirable outcome that a chosen action or activity has the potential to lead to. People usually think of risk in the negative sense, one that should be avoided or a threat that nobody wants to confront. 


However, in the investment world, risk and performance are inseparable, and is in fact, simply necessary. Understanding risk is one of the most important parts of financial education. Risk appetite and risk capacity are two concepts that need to be understood clearly before making investment decisions because they help determine the amount of risk that should be taken in a portfolio of investments.


Risk appetite: This is the degree of risk that an investor is comfortable taking, or the level of uncertainty he is confident of handling. Risk appetite often varies with age, income and financial goals. It can be determined by many methods, including questionnaires designed to assess the extent to which an investor can invest, while still remaining comfortable. Read More...





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