When it comes to investments in the equity markets, all investment carry risks. While the degree and magnitude of risk involved varies depending on the asset class, it can be comfortably assumed that even the most risk-free investments have inherent risks that an investor may not be fully aware of. On the ET Money show, we discussed these risks with Kirtan Shah, Founder & CEO, Credence Wealth Advisors to help you make safe and sound investment decisions.
According to Kirtan Shah, all investments carry risks irrespective of the asset class one is investing in. “Investing has risk irrespective of the asset class,” Kirtan said. And even the most safest of all investments carry inherent risks that investors may not know. Consider fixed deposits or FDs for instance. FDs have been the favourite investment option for risk-averse investors and the general feeling is that Fixed Deposits carry zero or no risks at all. However, Kirtan Shah disagrees. Kirtan highlights that Fixed Deposits are secured only up to Rs. 5,00,000. Further, they are not immune to inflation. If anything, fixed deposits fail to beat inflation post-tax. Not just that, they are vulnerable to interest rates too. In the current scenario where interest rates are rising, it is positive for fixed deposits. But when the tide turns or when interest rates go down again, fixed deposit investors will stand to lose. Moreover, in fixed deposits the money invested is not liquid meaning that it FDs also carry liquidity risks.
On the equity side, Kirtan believes investors need to understand the difference between volatility and capital loss. Also, equity investors need to give their investments time in order to mitigate the risks to their investments. Kirtan suggests equity investors stay invested for at least seven to eight years in order to battle the risks to their investments. Investments in debt, on the other hand, face two major risks: duration and credit risk. While Gold suffers from volatility and currency risk. Market fluctuations and movements in currency prices dictate Gold prices and by extension investment returns.