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When you make any investment in the stock market, it calls for a risk in your money. So steps should be taken in order to avoid investment risks. Let us have a look at the different kind of risks that are involved in investment.
When we say liquidity risk, we mean the investment which can be converted into money very quickly without undergoing any losses. Liquidity risk needs to be managed in addition to market, credit and other risks. You should always look for net cash flows on a day-to-day basis in the Indian stock market. Now how can we reduce liquidity risk? To do so, invest in those assets that are highly liquid like stock of a publicly traded company.
When we talk about liquidity, it means the investment that can be quickly converted into cash with incurring any losses. Items which can be converted into money are known as assets. Assets can be house, furniture, land, bonds, debentures, stocks…etc. Now in order to reduce liquidity risk, it is best to invest in those assets which are highly liquid. It could be like stock of a publicly traded company.
Now what is credit risk? Well, credit risks are those types of risks where a borrower is not able to pay its debt. Debt means that it could be a principal amount or interest of might be both of them. Now have you heard about a share of a company that got bankrupt? Well, you can avoid this type of situation. Invest in more than one company. No matter how the company is, the value of your shares will definitely go down if there happens to be a decline in the stock market.
Credit risk is that type of risk where a borrower is not able to pay its debt. Well, this could be a major risk. When we talk about debt, it means that the debt can be a principal amount or interest or both of them. This happens normally when the market of a company’s share suddenly decreases or goes bankrupt. Now how can you avoid this situation? Here it goes – invests your money not only in one company but more than one company. In case of corporate bonds, no matter how good the company is, if there happens to be an overall decline in the Indian stock market, the value of your shares will go down.
Have you heard that the value of a stock has gone down? This is called market risk. This normally happens when there is a change in the rate of interest, or commodity rates and so on. You should always monitor your investment plan periodically if you wish to invest in stock markets. Also you need to know more about share tips.
Sometimes the value of stocks goes down. Then market risk comes to the scene. This could happen due to change in the interest rate, commodity rates and the like. In order to avoid this type of risk, it is better to invest your money in both income assets and growth assets. It is also better to monitor your investment plan periodically.
Inflation risk is another risk associated with investment that lowers the value. You should invest in growth assets like stocks if you wish to avoid inflation risk. Retailers, hotels, resorts…etc are all harmed by inflation risk in the market whereas agricultural products, tire, rubber goods…etc are less harmed by inflation.
You should understand that you would always find investment risks in the market unless you make a proper and careful survey of the whole market; it is not advisable to invest in the stock market.
Another investment risk that lowers the value of your investment is the inflation risk. In order to avoid inflation risk, invest in growth assets like stocks. But it is always important to ignore ups and downs of the market and always focus on long term returns. So get some share tips from your friends or from your broker so that you come to know everything how to invest in shares and when to invest.
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