In the uncertain world of investing, hedging provides investors with a proactive shield, i.e., a defence against downside risks. On a fundamental level, hedging means taking a position that offsets potential losses in your main investment.
As an investor, you can look at hedging as insurance for your portfolio. It is essentially an investment made with the intention of mitigating the overall risk of adverse price movements in an asset.
To put it simply, hedging is a concept that involves using financial instruments or strategies such as derivatives, options, futures, or asset diversification across instruments such as stocks, bonds, and mutual funds, to reduce or offset potential losses in a portfolio.
For Indian retail investors, hedging can play a crucial role in protecting their portfolios from volatility and losses. One simple example is increasing portfolio allocation towards bank fixed deposits from direct stocks to ride the ongoing market volatility caused by geopolitical issues.
That is why investors seeking to protect their wealth amid global uncertainty, market swings, and rising inflation find hedging to be a smarter way to stay invested with better control of downside risk.
Disclaimer: The information provided is for educational purposes only and does not constitute financial, investment or trading advice. Investors should assess their risk tolerance and consult a qualified financial advisor before implementing any hedging or investment strategies. Market investments are subject to risks, including possible loss of principal.
