How to Start Investing

How to Start Investing: Understanding Risk Appetite

Making smart investment decisions requires knowing your risk tolerance. With many investment options with different risk and return profiles, knowing your risk tolerance helps you match your goals and tolerance. Understand risk appetite and how it affects investment strategies.

What is Risk Appetite?

Risk appetite is the maximum financial risk you will accept to achieve your investment goals before the risks outweigh the benefits. For instance:

  • If you invest in a 20% annual return but have a 40% chance of losing a lot of money, you have a high risk appetite. High-risk investors take risks for higher returns.
  • An 8% annual return investment with a 10% capital loss risk shows low risk appetite. Risk-averse investors value capital preservation over returns.

Investor Classifications Based on Risk Appetite

Investors are categorised into three groups:

1. Conservative Investors

  • Government schemes, bank deposits, and gold are low-risk options.
  • Preserve capital over returns.

2. Moderate Investors

  • Balance low- and high-risk investments.
  • Save capital and aim for moderate returns.

3. Aggressive Investors

  • Equity markets and derivatives are high-risk, high-return options.
  • Prioritise returns over capital.

How to Assess Your Risk Appetite

Consider these factors to evaluate your risk tolerance:

  • Financial Goals: Essential goals require lower risk tolerance than long-term goals.
  • Long-term investments can take calculated risks, but short-term goals require stability.
  • Positive Market Volatility Reaction: Risk tolerance increases with market volatility.

Risk Appetite vs Risk Tolerance

Though related, risk appetite and tolerance differ:

  • Risk Appetite: Shows willingness to take chances that support strategic goals and values. Broad and high-quality.
  • Risk Tolerance: Measures acceptable outcome variation.

Understanding these concepts enables better decision-making and effective risk management strategies.

Factors Influencing Risk Appetite

Several elements shape risk appetite, including:

  • Industry Trends: Technology volatility increases risk appetite.
  • Compliance: Regulations may limit risk.
  • Goals of the organisation Innovation-driven companies take more risks than traditional ones.

Disclaimer: This content is for educational purposes. Consult a financial expert for tailored advice.

How to Start Investing: Budgeting for Saving and Investing

Take control of your finances in 2025 with effective budgeting, strategic investing, and financial planning. Adopting disciplined financial habits can pave the way for lasting wealth.

1. Create a Budget

Budgeting is key to financial success. Follow the 50-30-20 rule: allocate 50% of your income to essentials, 30% to discretionary spending, and 20% to savings and investments. Use budgeting apps to track expenses and eliminate unnecessary spending.

2. Build a Smart Investment Strategy

Align your investments with your goals. For short-term needs, choose low-risk options like fixed deposits or debt mutual funds. For long-term growth, explore equity mutual funds, direct stocks, or retirement-focused plans such as the National Pension System (NPS). Regularly review your portfolio to stay on track.

3. Set Up an Emergency Fund

Save 6–12 months’ worth of expenses in a high-yield savings account. Automating contributions can help build this safety net steadily.

4. Manage Debt Wisely

Minimise high-interest debt, like credit card balances, and prioritise paying off loans quickly. Spend within your means to avoid falling into a debt trap.

5. Avoid Lifestyle Inflation

As your income grows, maintain focus on saving and investing instead of increasing expenses unnecessarily.

By adopting these practices, you can build a stable financial future. Consistent, informed decisions will help you achieve your financial goals and enjoy greater security.

Disclaimer: This article is for educational purposes only and does not provide investment advice. Investments are subject to risks; read all related documents carefully.