Like tastes, each individual has a different risk appetite. The risk profile of an individual is dependent on a range of factors like financial health, immediate liabilities, earning capability, attitude besides other things.

Even though every individual wishes to maximize the returns, he should choose investment avenues based on the associated risks.

Except government saving schemes, all financial instruments carry risk. For example, fixed deposits with banks and debt funds are low risk instruments. They also give low returns. Equities on the other hand can give high returns and therefore also carry higher risk. In short, risk and return go hand in hand.

For example, Bill Gates may be financially secure enough to consider investing a 1/10th of his wealth in a technological company that has the potential to give him a 10 fold return 10 years later, but has a high chance of going bust. On the contrary, a family man on the verge of retiring will be more comfortable investing his money in government paper which offers negligible appreciation of capital but assures him that he will never lose his principal. So, who would you say has made the better investment? Bill, because of the prospect of a spectacular pay off 10 years hence, or the old man because his capital is intact.

The truth is -Both. Each of them is investing to satisfy his/ her own requirements. Each individual has a different tolerance of risk and therefore should be looking at different types of investments.

While there are no watertight equations for identifying the exact risk-return tolerance levels for individuals, an approximate asset allocation model can be demonstrated based on an individual's risk tolerance and the corresponding realistic return expectations, using a "Risk Profiler" instrument.

We have included a scientifically designed risk profiler in the following pages. We urge you to try it out and find out what kind of return expectations you could have and the corresponding asset allocation models.