What are the types of Risk?
When you take risks, you learn that there will be times when you succeed and there will be times when you fail, and both are equally important.
Credit Risk: “No Man’s Credit is as good as his money”. A credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments. The risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial.
Liquidity Risk: “It’s the liquidity that moves the market”. Liquidity risk is the risk that anyone may be unable to meet short term financial demands. This usually occurs due to the inability to convert a security or hard asset to cash without a loss of capital and/or income in the process. For eg You are in urgent need of Money but all your Investments are done in such a way that you can’t get any money before its maturity which is after say 10 years – This is highly dangerous and Investor must understand what kind of Liquidity Risk is there in the instrument where he or she is investing
Market Risk: “Risk comes from not knowing what you are doing”. Market risk is the risk an investor experiencing losses due to factors that affect the overall performance of the financial markets. It is also called systematic risk which cannot be eliminated through diversification, though it can be hedged against in other ways. Remember one thing – When Markets are up you make profits and when Markets are down you get an Opportunity and get discount in purchase… This is where Investors make money
