In India’s dynamic financial landscape, striking a balance between maximising returns and minimising risk is a constant pursuit for investors. Moderate risk investments offer an attractive middle ground, catering to those who desire growth potential beyond low-risk options, but with a buffer against the volatility associated with high-risk ventures.
This approach allows you to harness the power of compound interest over time while safeguarding your principal investment to a reasonable degree. By exploring the diverse options available within the moderate-risk category, you can craft a personalised investment strategy that aligns with your financial goals and risk tolerance.
Understanding Medium Risk High Return Investments
Investments with a moderate risk, also known as investments with a medium risk and return, fall somewhere in the middle of low-risk and high-risk options. They provide the potential for significantly higher returns than fixed deposits or government bonds but with a greater degree of volatility compared to their low-risk counterparts. This volatility means the value of your investment can fluctuate in the short term, but historically, moderate-risk investments have offered the potential for substantial growth over the long term.
Examples of moderate-risk investments in India include certain types of mutual funds, real estate investment trusts (REITs), and select sectors of the stock market. Choosing the right moderate-risk investment requires careful consideration of your risk tolerance, investment goals, and time horizon.
The Attainment of Investments with Medium Risk For Indian investors seeking to grow their wealth, moderate-risk investments offer a compelling balance. These instruments provide the potential for higher returns compared to low-risk options, like fixed deposits, while carrying lower risks than direct stock investing. This translates to the possibility of outpacing inflation and achieving long-term financial goals.
Moderate risk investments are ideal for individuals with a balanced risk tolerance who are comfortable with some price fluctuations in exchange for the chance of significant gains. This asset class caters to a wide range of investors, from those nearing retirement who seek to grow their nest egg to young professionals saving for future milestones. By incorporating moderate-risk investments into a diversified portfolio, Indian investors can leverage the potential for growth while mitigating risk.
Best Medium Risk Investments
Some of the best moderate risk investments are discussed below:
Balanced or Hybrid Mutual Funds:
For moderate risk-takers seeking a balance between growth and stability, balanced or hybrid mutual funds offer a compelling option. The goal of these funds is to generate income in addition to capital appreciation by strategically combining equity and debt investments. The specific asset allocation between stocks and bonds varies depending on the fund’s risk profile, allowing you to tailor your investment to your risk tolerance.
Life Insurance:
Life insurance can also be considered a moderate risk investment option, as it provides a guaranteed return in the form of a death benefit, while also offering the potential for cash value accumulation over time. Whole life insurance and universal life insurance policies, in particular, can provide a moderate level of risk, as they offer a guaranteed minimum return, but also offer the potential for higher returns based on the performance of the insurance company’s investments.
Some benefits of life insurance as a moderate risk investment include guaranteed death benefit, potential for cash value accumulation, tax-deferred growth, flexibility in premium payments and death benefit and also an opportunity to invest in a variety of assets, such as stocks and bonds. Investors can also claim annual deductions up to Rs. 1.50 lacs under Section 80C on the amount of premium paid by them.
However, life insurance should not be considered solely as an investment, but also as a means of providing financial protection for loved ones in the event of death.
Equity-Linked Savings Scheme (ELSS):
ELSS mutual funds primarily invest in stocks, offering the potential for higher returns compared to fixed-income options. However, they come with inherent market volatility. The lock-in period of three years encourages a long-term perspective, which can help reduce risk and take advantage of potential market expansion. Investors looking for both growth and tax advantages will find that ELSS is an appealing option due to the fact that it provides tax deductions under Section 80C of the Income Tax Act. Monthly Income Plans (MIPs):
Monthly Income Plans (MIPs) offer a compelling option for investors seeking a balance of income generation and capital appreciation. MIPs are a type of mutual fund that primarily invests in debt instruments like corporate bonds and government securities, with a smaller allocation towards equities.
This strategic asset allocation aims to deliver regular dividend payouts, acting as a source of monthly income while also offering the potential for capital growth over the long term.
Real Estate Investment Trusts (REITs):
Real Estate Investment Trusts (REITs) offer an attractive option for those seeking stable returns with some growth potential. REITs pool investor capital to acquire and manage income-generating properties. Investors benefit from regular dividend payouts tied to rental income while also enjoying some appreciation potential through underlying property value increases.
In addition to offering a diversification alternative to conventional stocks and bonds, REITs can also serve as an inflation hedge. However, they are still subject to market fluctuations and property-specific risks.
Large Cap Mutual Funds:
Large-cap mutual funds invest in the stocks of India’s biggest and most established companies. Large-cap funds offer a valuable balance. They provide the potential for steady growth alongside a relatively lower risk profile compared to small-cap or mid-cap funds. This stability makes them a compelling option for investors seeking moderate risk exposure within their portfolio.
Gold:
Gold has captivated investors for millennia. In India, it’s particularly favoured for its cultural significance and stability. Even though gold prices can change, it has traditionally been used as a hedge against market declines and inflation. Investors seeking moderate risk can consider physical gold or gold ETFs (Exchange Traded Funds) for portfolio diversification and long-term capital appreciation.
How to Approach Moderate Risk Investments?
A well-thought-out investment strategy is essential for investments with a medium risk. Below are some steps to help you navigate this process:
Assess Your Risk Tolerance: Understanding your risk appetite is paramount. Moderate risk options aim to balance growth with some volatility. Evaluate your comfort level with the asset’s market fluctuations to ensure your investment plan aligns with your risk tolerance.
Having a clear understanding of your financial objectives is essential. Are you saving for a child’s education, a dream retirement, or wealth creation? Aligning your medium-risk investments with your long-term goals ensures your portfolio works towards achieving your desired financial future.
Diversify Your Portfolio: To mitigate risk within your portfolio, spread your assets across various categories. This reduces dependence on any single security’s performance. A well-rounded portfolio might include a mix of stocks, bonds, and possibly real estate investment trusts (REITs). Consult a Financial Advisor: For personalised guidance on navigating moderate risk investments in India, consider consulting a registered financial advisor. Their expertise can help tailor an investment strategy aligned with your risk tolerance and financial goals.
4 Medium Risk Investment
Four additional moderate risk investment options are listed below for growth and capital preservation:
1. Bonds from businesses What are they?
Corporate bonds are debt instruments issued by corporations to raise capital. By purchasing a bond, you become a creditor to the company, lending them money. In return, they promise to pay you regular interest and return the principal amount upon maturity.
Corporate bonds fall squarely into the category of investments with moderate risk because they offer a steady income stream but generally carry more risk than government bonds. Current dividend yields:
Corporate bond dividend yields fluctuate based on market conditions and the credit rating of the issuer. Investors should conduct thorough research before investing to determine the prevailing yields. The corporate debt instruments typically yield an average of 8-10%, whereas government-held bonds usually yield about half of that.