High-Risk Investment

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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Disclaimer: #The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CAGR 8%; ₹50,45,591 @ CAGR 4%. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.

What is High-Risk Investment?

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.

Features of High-Risk Investments

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:
- Market fluctuations
- Regulatory changes
- Technological advancements
- Competitive pressures

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.

Best High-Risk Investment Options

The best high-return investments in India that involve high investment risk are listed in the table below:

Stocks of Emerging Companies
- 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
- 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
- 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 Investment
- 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 Investing
- 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
Initial Public Offerings (IPOs)
- 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
Alternative Investment Funds (AIFs)
- 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:
- 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
Foreign Exchange Trading (Forex)
- 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
Commodity Futures
- 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

Key Tips to Invest in High-Risk Investments

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.

Wrapping It Up

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.

FAQ's

What is a high-risk investment?

High-risk investments are those that have a greater chance of losing money than other types of investments. They often offer the potential for higher returns, but they also come with a higher risk of loss—for Example, cryptocurrencies, venture capital investing, Alternate Investment Funds, and Forex trading.
Which investment has the highest-risk return?
Some examples of high-risk investments with potentially high returns include:
- Stocks of small or newly established companies
- Initial Public Offerings (IPOs)
- Venture capital and angel investments
- Cryptocurrencies
- Derivatives and options trading
How to earn 2 crore in 5 years?
There is no guaranteed way to earn 2 crores in 5 years. However, there are a few things you can do to increase your chances of success, like:
- 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
Can I earn Rs. 1 crore from the stock market in 1 year?

It is possible to earn 1 crore from the stock market in 1 year, but it is not guaranteed. You would need to make very risky investments and get very lucky.
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.
Where to invest money to get good returns?
Let us learn some of the few popular investment options that have the potential for good returns:
- Stock Market
- Mutual Funds
- Index Funds
- Real Estate
- Bonds
- Peer-to-Peer Lending
What is called total real investment?

Total real investment refers to the total amount of money invested in the economy for the purpose of acquiring or expanding physical assets such as machinery, equipment, buildings, and infrastructure. It represents the actual investment spending on tangible assets that contribute to the productive capacity of an economy.
Real investment is distinguished from financial investment, which refers to the purchase of financial instruments such as stocks, bonds, or other securities.
What do you mean by investment?

Investment refers to the act of allocating resources, such as money, time, or effort, in the pursuit of generating future income or returns. It involves committing funds to an asset, project, or venture with the expectation of obtaining benefits or profits over time.

†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in

Past 10 Years' annualised returns as on 01-12-2024

^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.

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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 1 Cr. is for a 30 year old healthy individual investing Rs 10,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: ₹1,05,02,174 @ CARG 8%; ₹50,45,591 @ CAGR 4%

¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.

**Returns are based on past 10 years’ fund performance data (Fund Data Source: Value Research).