High-risk investments are financial opportunities that possess a significant likelihood of loss or failure. These investments offers a greater chance of high returns and involve a higher level of uncertainty than more conservative options. Examples include stocks of volatile companies, cryptocurrencies, startup investments, future contracts, forex trading and investing in emerging markets. In this article, let us learn about the high-risk and high-return investments in India.
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A high-risk investment definition can be understood as one of the best options with a higher potential for loss than a low-risk investment. These risk investments often offer the potential for higher returns but also have a higher level of uncertainty.
For Instance, Imagine you are playing a game where you can win a lot of money, but there is also a significant possibility of losing it all. That is similar to high-risk investments.
High-risk, high-return investments are like taking a bigger gamble with your money in the hopes of getting a bigger reward. But it also means there's a higher chance of losing your investment.
Let us learn some of the key features typically associated with high-risk investments:
Volatility: High-risk investments are more volatile, meaning their prices or values fluctuate significantly over short periods. This volatility can result in rapid gains or losses.
High Potential Returns: One of the main attractions of high-risk investments is the potential for substantial returns. These high-risk, high-return investments often involve opportunities to generate significant profits if they succeed.
Uncertainty: High-risk investments are often associated with a greater level of uncertainty. The outcomes of such assets may be less predictable due to factors such as:
Illiquidity: Some high-risk investments may be illiquid, meaning they cannot easily convert into cash. These investments often require long holding periods before you can access your funds, limiting your ability to respond quickly to changing circumstances.
Higher Investment Thresholds: High-risk investments may require a significant amount of capital to participate. The aim is to restrict access to these investments, as they are typically aimed at sophisticated or accredited investors who can afford to take on substantial risks.
Greater Emotional Involvement: High-risk investments can evoke strong emotions due to their potential for significant gains or losses. Investors may experience increased levels of stress, anxiety, or excitement compared to lower-risk investments.
The best high-return investments in India that involve high investment risk are listed in the table below:
Investing in stocks of companies are typically in the early stages of development and have less of a track record than established companies
Uncertainty about their future performance also brings the potential to generate high returns for investors
These companies generally operate in industries with higher volatility and market uncertainties
These investments can be highly risky but also offer significant growth potential
Cryptocurrencies, such as Bitcoin and Ethereum, are highly volatile investments and can experience rapid price fluctuations
Investing in cryptocurrencies carries significant risks due to factors such as regulatory uncertainties, technological vulnerabilities, and market sentiment
Despite the risks, cryptocurrencies can also be a high-return investment
Leveraged trading involves borrowing funds to amplify your investment position
It allows you to control a more significant position with a smaller amount of capital
Leverage is typically provided by a broker, who will lend you money to fund your trades
While this best investment option can magnify gains, it also increases the risk of losses
Margin trading in the stock market or trading derivatives like options and futures can be considered high-risk strategies
It becomes crucial only to use the leverage that you are comfortable with
Venture capital is a type of private equity that is invested in early-stage companies with high growth potential
Investing in startup companies through venture capital funds gives the best return on investment option, but it involves significant risks
Startups often have a high failure rate which makes investors prone to investment risk
Their liquidity options are limited to successful exit events, such as an acquisition or initial public offering (IPO)
Angel investors are individuals who provide capital to early-stage companies in exchange for equity
Angel investments are typically made in companies that are too small to qualify for venture capital funding
Early-stage companies are more likely to fail than established companies
Angel investments typically have a long-term horizon, as it can take years for a startup to reach the point where it is ready to exit
Even then, there is no guarantee that the investor will receive a return on their investment
However, if an investor is lucky enough to back a successful startup, they can potentially earn a significant return on their investment
An initial public offering (IPO) is the process by which a company makes its shares available to the public for the first time
Participating in IPOs can be lucrative, but this is one of the best investment plans with high returns that comes with high risk
Newly listed companies may experience volatile trading, and their long-term success is uncertain
Proper due diligence and understanding the company's fundamentals are crucial before investing
An alternative investment fund (AIF) is a privately pooled investment vehicle that invests in assets that are not typically available to the general public
AIF investments are among the top high-return investments but are prone to high investment risk:
Real estate investment trusts (REITs)
These funds invest in assets that are not as liquid as stocks and bonds, which means that there is less competition for these assets
These investments can be illiquid, have higher fees, and may require higher minimum investments
Forex trading involves buying and selling currencies in the global foreign exchange market to make a profit
It offers the potential of high return investments but is accompanied by significant risks due to the following:
The value of currencies can fluctuate wildly, and even a small change in the exchange rate can result in a considerable loss or gain
This makes forex trading a hazardous investment for inexperienced traders
A commodity future is a contract to buy or sell a certain amount of a commodity at a set price on a specified date in the future
Commodity futures are traded on exchanges, and they are used by businesses to hedge against price volatility and by investors to speculate on the future price of commodities
Investing in commodity futures, such as oil, gold, or agricultural products, can be highly volatile
Prices are influenced by supply and demand dynamics, geopolitical factors, and weather conditions, making commodity futures a high-risk investment option
Let us understand some of the essential points before investing in high-risk investments:
Research and Due Diligence: Before investing in any high-risk opportunity, thoroughly research the investment, the market, and the company or project involved. Look for information on the management team, their track record, and the overall viability of the venture.
Diversification: By diversifying your investment options, you reduce the impact of a single investment's failure on your overall portfolio. Consider investing in different industries, sectors, or asset classes.
Risk Tolerance and Investment Goals: Assess your risk tolerance level and consider your investment goals to determine how much you are willing to invest in high-risk assets. Only invest funds you can afford to lose without negatively impacting your financial well-being.
Monitor and Re-evaluate: Regularly monitor the performance of your high-risk investments and stay updated on any changes in the market or the asset itself. Be prepared to re-evaluate your investment strategy if the circumstances or risk factors change significantly.
Risk Management: Implement risk management strategies to protect your investment, like the following,
Setting stop-loss orders
Diversifying across asset classes
Using hedging techniques
Risk management is crucial in high-risk investments to minimize potential losses
Patience and Discipline: It is essential to remain patient and disciplined, sticking to your investment strategy even during turbulent times. Avoid making impulsive decisions based on short-term market fluctuations.
Learn from Mistakes: Accept that not all high-risk investments will be successful. Learn from any mistakes or losses and use them as opportunities for growth and improvement. Adapt your investment strategy based on your experiences and the lessons learned.
Investing in high-risk investments can offer potential rewards, but it comes with inherent challenges and uncertainties. Thorough research, diversification, understanding risk tolerance, and seeking expert advice are crucial for navigating this investment landscape.
Stocks of small or newly established companies
Initial Public Offerings (IPOs)
Venture capital and angel investments
Derivatives and options trading
Start investing early; the more time your money will have to grow
Invest in a diversified portfolio, such as stocks, bonds, and mutual funds
Reinvest your earnings which helps your money to grow even faster
Take advantage of tax-saving investments
Even if you are successful, there is a high chance that you could lose all of your money in the next year.
A more realistic goal would be to earn 1 crore from the stock market over 5-10 years. You can achieve this goal by investing in a diversified portfolio of stocks and ETFs and reinvesting your dividends.
Real investment is distinguished from financial investment, which refers to the purchase of financial instruments such as stocks, bonds, or other securities.
Past 10 Year annualised returns as on 01-12-2023
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