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Who wouldn’t want to double their money in just a year? While this idea seems to be extremely exciting, you need to put in some thought before making such an investment. Investment is an excellent way of increasing your idle money automatically. The basic aim of an investment is to raise money to accomplish personal goals.
Different investments are made according to the requirement of the money. You can invest in potential stocks and bonds which can generate high returns that can reach up to 80-100% in a year. While these investments can make you rich quickly, they are not risk-free. If the tables get turned the other way, you may suffer a heavy loss, possibly making you bankrupt. Here are the two major reasons why investing in such volatile schemes is a bad decision.
High Return & Low-Risk Investments are Smarter Options
Anyone would love to get their money doubled in a matter of 12 months or even less. Then again, no one would wish that at the risk of getting bankrupt. While investments in high return potential stocks can give you better returns in shorter times, they are not safe. Various market risks and inflation affect the interest rates and disrupt your financial plans. Hence, if you are in real need of more money, instead of risking your whole security, you can pledge a loan against it. And if you are in no urgent need of generating cash and just want to invest money for returns, you can go for safe investments like fixed deposits.
Investing in low-risk mutual funds with NFBCs like Bajaj Finance gives you high returns with safe options of flexible liquidation. If you don’t want to get involved in market risks, you can always opt for traditional investments methods like FDs. In fact, with Bajaj Finance, you have the opportunity of getting higher FD interest rate than what banks provide. So, stay put the next time someone mentions anything about doubling your money in a year. Instead, opt for risk-free guaranteed returns with fixed deposits.
Market Risks
There is a strong reason why the symbol of the stock market is a Bull. When you invest in the schemes that have high volatility, you are riding a wild bull. This ride can either take you to your goal real fast or can bruise you very badly. Investments that have a higher beta value have high return potentials. Then again, this type of investments is highly volatile and are very sensitive to market fluctuations. Investment in high return schemes that are volatile involves following major three types of market risks.
Interest Rate Risks
One thing that anyone considers while investing is the rate of interest of the scheme. While you invest in a volatile scheme that has a high rate of interest, you also get involved in the risks that might affect it. The interest rate risk means that the value of an investment will change due to changes in interest rate relationship. The increase in market interest rates decreases the value of interest rate on your investment.
Equity/Commodity Risks
If you have invested in high potential stock, then the possibility of stock price changes regarding the market is evident. This is known as equity risk. Similarly, if you have invested in any commodity, the commodity risk rises with the change in commodity prices according to market fluctuations.
Currency Risks
Currency risk, also known as the exchange-rate risk, highly affects investments in countries like India. The change in the price of a specific country’s currency directly affects your holdings of investments in foreign assets. Thus, it might be true that highly volatile investments drive more fortune in shorter times, but they involve multiple risks that can affect your financial plans gravely.
Effect of Inflation
Generally, investments in stocks are not majorly affected by inflation. Stocks have good hedges against inflation that do not get impacted by inflation rates. But in countries like ours, where the economy is not always stable, stocks get affected badly. High inflation rates can even turn your return rates into negative. For example, if your investment returned 2% before inflation and if there is a 3% increase in inflation, your investment will produce a negative return of -1%.
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This is a featured post by site supporter Nidhi Mahajan
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