Don’t Just Look at Return, Consider Risk too

Don’t Just Look at Return, Consider Risk too

To incentivise investors to invest in the second investment, it should offer an expected return greater than 6.40 percent.

Last week came the news that yet another investment firm has allegedly defrauded its investors, among them a famous sports personality, to the tune of Rs 4 billion. This investment firm had promised investors returns of 23-25 per cent. What boggles the mind is how any entity can get away by promising a return that is almost four times the current State Bank of India one-year fixed deposit (FD) rate of 6.40 per cent.

This is not the first time that investors have fallen for such false promises, and will certainly not be the last. The question that arises is why such scams keep happening with unfailing regularity in India, and why the literate strata of our society in particular falls prey to them. Do we not understand that risk and return go hand-in-hand, or do we, in our rush to get rich, simply choose to ignore risk? Read more…

Author: Professor Ramabhadran Thirumalai Senior Associate Dean, Academic Programmes and Clinical Assistant Professor, Finance at the ISB

Source: This article is extracted from BW Education dated March 23, 2018.

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