Risk profile is generally asked by any financial advisor. What does Risk Profile mean? In simple terms it is your capacity to take risks. You may want to take a 100% risk with your capital, but the questions they ask before slotting you in a particular risk profile is the real risk YOU can take. I may have 10 Lakhs and may want to invest it in a 100% risky investment. It can fetch you good returns after a few years or it may not. But till such time how are you going to survive. So, the risk profile takes your income, expenses, emergency fund etc and your age (key) to determine the risk profile.
Risk Profiling is important and I have categorised as follows:
a) 20 years to 35 years (assuming you start earning) - High Risk (Equity/Ipos/crypto/nft) - Risk (Equity/Mutual fund) - Safety (some long term debt funds)
b) 36 years to 45 years (assuming you have invested above and have some capital)- Risk (Primarily Equity, Index funds and some IPO's)- Risk (Mutual fund -aggressive ones/sectoral)-Safety (some medium term debt funds)
c) 46-59 (assuming you have made a neat pile by now)- Risk (Mutual fund- Multi asset/Multicap/some sectoral, Equity large caps/index)- Safety (More medium and short term debt fund)- Income (funds/equity that generate dividends or deferred annuity plans)
d)60 and above - Safety (liquid funds, short term funds)- Income ( funds that get you regular income). By this time, your investment should focus on Safety and getting regular income for living a normal life. If over and above that you have funds, you can risk by trading/playing the market for time pass.
The above may or may not be applicable to all as each one may have some other commitments in terms of debt of house/family commitments/health issues etc. But investments like above sample is required for ensuring a financial freedom, at the age of 60
