RISK PROFILING

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One can understand the risk profile as the quantification of risk tolerance of an individual.

Every individual has a different tolerance to market volatility or risk based on several factors like disposable income, age, et al. Therefore, risk profiling helps both an investor and financial advisor to create a specific investment portfolio with an asset mix correlating to his risk profile.

Organisations also use the term ‘risk profile’ to define the potential threats to which it is exposed.

By identifying the risk profile, organisations can take corrective or pre-emptive measures to minimise, and sometimes, even avert impending losses. However, the term’s predominant use is found in the context of an individual’s risk tolerance.

Risk tolerance, on the other hand, refers to an investor’s willingness to take risks or the level of volatility in returns one is ready to deal with.


person’s risk profile are:

Factors Descriptions
Age Since young-aged investors are more likely to be welcoming of risk than individuals nearing their retirement age.
Lifestyle Unmarried investors in the early stages of their career can afford to take risks compared to a middle-aged person with dependents.
Financial goals Another critical determinant of risk profile is the financial goal of an investor. For example, if an investor aims to accumulate substantial capital for retirement, then he/she would go for a predominantly equity-based portfolio.