No two investors are the same. A 28-year-old software engineer building wealth over 20 years should hold a very different portfolio than a 55-year-old professional planning retirement in 5 years. Risk appetite isn't just a preference — it determines how much volatility you can absorb financially and psychologically without making destructive decisions at market bottoms.
Sentiquant's portfolio generator uses three risk profiles — LOW, MEDIUM, and HIGH — to build customised NSE and BSE portfolios. This article explains how each profile works, what drives the allocation logic, and how to choose the right one.
Understanding Risk Appetite
Risk appetite has two components that must both be addressed:
- Financial capacity for risk — can you afford a 30% drawdown without needing to sell?
- Psychological tolerance for risk — will a 30% drawdown cause you to panic and sell at the bottom?
Both matter equally. A trader with high financial capacity but low psychological tolerance will underperform because they'll sell at the worst time. The correct risk profile is the one you'll stick to through a full market cycle — including a 25–40% correction.
LOW Risk Profile
Who This Is For
- Investors within 5 years of needing the capital
- Retirees or near-retirees prioritising capital preservation
- First-time investors building confidence
- Investors who have experienced psychological distress during past market corrections
Typical Allocation Logic
A LOW risk portfolio on Sentiquant is weighted heavily towards:
- Large-cap defensive stocks — FMCG (HUL, Nestle, ITC), pharma (Sun Pharma, Cipla), utilities (NTPC, Power Grid)
- High-dividend payers — Stocks yielding 3%+ provide income that partially offsets market volatility
- Low-beta stocks — Stocks that move less than the broader Nifty 50 in both directions
- Portfolio diversification — Minimum 10–12 stocks across at least 5 sectors
Stop-losses in LOW risk profiles are set wider (10–15% below entry) to avoid being stopped out of quality positions during short-term volatility.
Expected Characteristics
- Annual return target: 10–14% CAGR
- Maximum expected drawdown: 15–20%
- Portfolio beta: 0.6–0.8 vs Nifty 50
MEDIUM Risk Profile
Who This Is For
- Investors with 5–15 year time horizons
- Those comfortable with short-term volatility who won't panic-sell
- Traders building core holdings alongside more active strategies
Typical Allocation Logic
A MEDIUM risk portfolio balances quality large-caps with selective mid-cap exposure:
- Core large-caps (50–60%) — HDFC Bank, TCS, Reliance, Infosys, Maruti
- Quality mid-caps (30–35%) — Sector leaders in growing industries with strong balance sheets
- Tactical positions (10–15%) — Higher-conviction swing setups identified by the AI scoring engine
Stop-losses are set at 8–10% below entry, tightening to breakeven once Target 1 is reached.
Expected Characteristics
- Annual return target: 15–20% CAGR
- Maximum expected drawdown: 25–30%
- Portfolio beta: 0.9–1.1 vs Nifty 50
HIGH Risk Profile
Who This Is For
- Investors with 10+ year time horizons and significant capital outside this portfolio
- Traders with strong psychological tolerance for 30–40% drawdowns
- Those seeking maximum long-term wealth creation who can hold through volatility
Typical Allocation Logic
HIGH risk portfolios are concentrated and aggressive:
- High-growth mid and small caps (50–60%) — Companies with 25%+ revenue growth, strong management, and large addressable markets
- Thematic bets (25–30%) — EV, renewable energy, specialty chemicals, defence manufacturing
- Core large-caps (15–20%) — Anchor positions in fundamentally strong large-caps for stability
Concentration is higher: 8–10 stocks rather than 12–15. Stop-losses are tighter (6–8%) to limit downside on high-beta positions.
Expected Characteristics
- Annual return target: 22–30% CAGR (highly variable)
- Maximum expected drawdown: 35–45%
- Portfolio beta: 1.2–1.5 vs Nifty 50
Position Sizing: The Critical Component
Regardless of risk profile, position sizing is the most important variable for long-term survival in markets. Sentiquant calculates position sizes based on two inputs:
- Portfolio stop-loss budget — you should never risk more than 1–2% of total portfolio capital on any single trade
- Individual trade stop-loss distance — the distance from entry to the AI-calculated stop-loss
Formula: Position Size = (Portfolio × Risk%) / Stop-Loss Distance
Example: ₹10 lakh portfolio, 1.5% risk per trade, stop-loss 6% below entry → Position size = ₹10,00,000 × 0.015 / 0.06 = ₹2.5 lakhs (25% of portfolio in this position)
Build your risk-based portfolio
Enter your budget, select your risk profile, and get a fully allocated NSE/BSE portfolio with position sizes and stop-losses in under 60 seconds.
Try the portfolio builder →Not financial advice. Expected returns and drawdowns are based on historical backtests and are not guarantees of future performance.