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Risk of Investment in Shares

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Risk of Investment in Shares

One of the popular forms of investment is the share market. You can achieve higher returns with share market. But share market is not an exception to the risk factor. Share market also faces risks such as market risk, company risk, risk due to inflationary pressures, and regulatory risks. Other types of risks do exist in stock market.

It is not difficult to invest in stocks. You must know the working of the stock market. You should also be well-versed with the investing requirements in a specific stock market. But what about the risk factor? The knowledge of risk factor will not scare you off from the share market. But it will keep you alert and attentive while trading in share market.

Risk of Investment in Shares

Market risks

The higher return in share market is dependent on the market price of the shares. But it must be noted that in addition to the market price, the company’s performance and the market liquidity also influence the return-earning capacity of an investor. If you are investing for a long-term duration, then you have an added advantage. You will face relatively less risks and will be safeguarded against the daily changes in the market price of shares.

Company risks

If a company’s position in the market is deteriorating and is not able to pay dividends to the shareholders, then you are facing company risks. In order to avoid this problem, you can conduct a comprehensive research of the company before buying the shares of the same.

Risk due to inflationary pressures

Your investment is subject to risks such as inflation risk, and uncertainty risk. It has an impact on the future value of your investment. Every problem has a solution, right? You can conduct a detailed research on your purchasing power and its development during the period of inflation.

Regulatory risk

Every company has to follow certain regulations as provided by the government and other statutory authorities. If any new enactments are introduced by the regulatory bodies, then it may have an impact on the business operation and profit-making capacity. Thus, you investment is largely subject to these regulatory risks.

The share prices are also subject to unexpected events outside the ambit of the company. It can be change in the government policy or even a disaster. It can also impact your share prices.

Risk due to volatility

The values of shares are volatile enough and can even fall to zero. Hence, as an investor, you are constantly facing this risk of volatility.

Credit risk

Being an owner of ordinary shares, you stand last in the queue while receiving your money back at the time of winding-up of the company operations. There may be also some chances of not getting your money back.

Insufficient knowledge

You must never give an innocent answer when you suffer a loss, ‘I didn’t know about it.’ It shows lack of knowledge on your part and is a kind of risk for an investor.

Thus, though investing in share market is subject to risks, you can cope up with it by adequate knowledge and practical tips.

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Ankita Patil is Commerce as well as a Law graduate from University of Mumbai. She is a qualified Company Secretary from ICSI, New Delhi.

2 COMMENTS

  1. Share market is a gambling. Unless you master the art well, your strength is your luck factor. Millions of rupees are lost in investments and gained on a daily basis. Certainly, investors need to be vary before proceeding with any buying of stocks. Thanks to the internet, almost all the required information is available including the performance report, growth trajectory, market share, health of the company,turnover etc. It is best to initially work under the guidance of an expert who has a good track record of dealing with investors. Greed should not overtake reality for efficient operations in the share market

  2. Share trading has always been a favourite mode of investment of masses. It is a global trend to invest in shares. Sharing trading has its pros and cons. Even if some may disagree, but there is a bit of luck involved in share trading. Shares can give you enormous returns and make you rich in no time, but it also has equal amount of risk. Many people loose all their savings in shares and are left with nothing. Equity shareholders have the highest risk because they have a last priority in matters of dividend and return of capital. They cannot complain even if they do not receive dividend for months. Additionally, all the risks mentioned in this article play a major in determining the returns.

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