When you invest, you put your money into financial products or assets in order to reap returns over time. These instruments could be savings accounts, fixed deposits (FDs), gold, mutual funds, stocks, or other vehicles.

While investing, the idea is to make your money work for you by earning returns. However, some investments also come with risks; that is, the possibility that you might not get back the expected returns, or worse, lose some of your initial investment.
 

While many people avoid investing due to fear of risk, it’s important to understand that even seemingly safe options like savings accounts or FDs carry risk. Putting that into perspective, even seemingly riskier instruments may carry less risk than you believe they might.

Some investments may not always keep up with inflation (due to which the real value of your money decreases over time). But by making informed choices, you can make safe investments and grow your wealth in a safer manner while beating inflation at the same time.
 

If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.

• Start with low-risk investments, then explore other instruments as you gain experience.
• Consider diversifying across asset classes to minimise risk and enhance potential returns.
• Longer investment periods typically reduce the likelihood of losses, especially in equities.
• Evaluate risk, track record, and fees when choosing investment products, not just returns.

Risk in the investment world refers to the chance that the actual returns will differ from expected returns. This may entail losing a fraction or all of your money.

For most people, risk is a major concern and pushes them towards what are considered safe investments like savings accounts or FDs, which offer more security but provide much lower returns. However, even these options come with hidden risks, particularly when inflation is considered. If the interest rate on your FD is lower than the inflation rate, your real returns could be negative. In the event of an economic meltdown, even banks may be unable to pay the returns they promised on an FD.
 

So, how do you steer clear of risk, and make safe investments?

One key to safe investing is to start with lower-risk options, especially if you're new to the world of investments. Many people jump into high-risk investments like stocks, only to meet with losses early on. This discourages further investing.

To avoid this, it is better to begin with lower-risk options like debt funds or short-term bond funds. These allow you to gain confidence and generate returns with much lower risk before moving on to riskier options.
 

Some people apply the “100 minus age” approach, subtracting their age from 100 to determine the percentage of their portfolio that should be in equities. However, it is impractical to guide investors on risk in such a manner, as risk appetite depends on more than just age.

Understand what your risk appetite is, and be more practical by starting conservatively. Use safer investments first, and gradually venture to other options as you gain experience and knowledge.

Diversification is a foundational strategy and one of the most effective ways to reduce risk in your investments. By spreading your investments across a variety of asset classes, such as stocks, bonds, and commodities like gold, you can minimise the impact of any single asset underperforming. Diversification can also be achieved by placing your funds in different industries that are not interdependent.

Some mutual funds (like hybrid or blue-chip funds) are a great way to achieve diversification. However, different mutual funds have varying goals. For some, diversification may not be one of the objectives. That is why investing in just one mutual fund may not be enough to truly diversify your portfolio.

Using principles from Modern Portfolio Theory, you can combine different types of funds, such as equity, debt, and gold funds, to balance risk and returns.

Another important aspect of safe investing is understanding that risk decreases over time. The longer you hold an investment, particularly in equities, the lower your chances of experiencing a loss. However, pay attention to the word ‘chances’.
 

Short-term market fluctuations can cause volatility, but over longer periods, the probability of losing money reduces significantly. Nonetheless, equity will usually carry more risk than debt-based funds or government-backed securities.
 

For long-term investors, the idea that time reduces risk is particularly beneficial. By holding investments for several years, you give them the opportunity to recover from any short-term dips and benefit from long-term growth trends. Therefore, if you choose to invest in higher-risk assets like equities, be prepared to stay invested for the long term.
 

You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.

The success of your strategy largely depends on choosing the right financial products. Many investors make the mistake of only looking at past returns when selecting investments.

However, it’s equally important to consider other factors such as the level of risk, track record, and fees associated with the product. Pay attention to these:
 

• Risk and returns: Look at how much risk is involved in the product and whether the potential returns justify that risk. Ideally, the expected returns should outweigh the risks.
• Historical performance: While the future can’t be predicted, a product with a solid performance record provides some indication of its reliability.
• Fees and charges: Even if an investment product has strong returns, high fees can eat into your profits. Always consider management fees, transaction costs, and other expenses before committing.

Safe investing doesn’t mean avoiding risk entirely; it means managing risk intelligently. By starting conservatively, diversifying your portfolio, and investing for the long term, you can reduce the likelihood of losses and achieve steady growth over time.