Know About Investment Risk In Its Various Forms.
Most investors face risks; therefore the Investment risk can be varied. A few of them are capital risk, credit risk, Investor risk and the list might not end. Money invested or the capital for any business does not give you profit and if the business fails or incurs a loss it is called as capital risk.
Sometimes you may be investing on a property or share or anything else. There would not be actually any loss or fall in the value of your investment in the financial market. But it could not be readily saleable or in other terms your investment may not be liquid in order to help you in emergencies. Such kind of Investment risk is called liquidity risk.
The world of financial market is always ruled by the supply and demand chain. When there is more demand each purchaser of a share, stock or securities will pay more than the previous person in the chain. The vice versa happens when all sellers want to sell their investment in the market. Then artificially the prices of your shares or stocks go down and will result in a loss for you. This type of risk is called market risk.
Investment risk in one another form is the credit risk. This kind of risk is common for both corporate investors and individual investors. This credit risk occurs when the person for whom you have extended a loan defaults to pay the loan. Then your interest along with your principal is lost. This is a high risk area and requires a special expertise in colleting the money which you have lent to someone for personal or commercial reasons. In contrary if the loans are paid back or settled before the expected time, there also you incur a loss on your interest. The money which comes back to you has to be reinvested in some other ways which should give you the returns as the prior one. Finding a suitable investment immediately is not so easy and your money remains idle without giving returns till you find an alternative to invest. This kind of Investment risk is called as Reinvestment risk. As an individual investor or as a corporate you face legal risks when you hold deposits with the bank. Legal regulations on the bank by the government will affect the depositors very badly at times. Other legal risks may include regulations regarding the investment and the tax to be paid for the earnings. This is also a kind of Investment risk which is not so visible but underlies with each investment. We cannot or should not avoid investing in spite of all the risks involved. Because money should always not stagnate somewhere it has to grow and make us financially and economically stronger. The smarter way is to minimize risk by properly and carefully analyzing the market situation and selecting a balanced investment options and maximize our returns.
| 