#Kolkata: Stock market always fluctuates. Yet it is considered to be one of the best means of investment. Because investors get the highest returns here. Although the risk is lower in some cases, it is never as safe as a bank fixed deposit. Instead, long-term investments can yield hefty returns. As a result risk must be dealt with, and this is the main task of investors. What are the risks, what are the ways to avoid them? Let’s take a look.
#1 Market Risk –
The price of a stock is determined based on the demand and supply of the stock mentioned in the stock market. Therefore, it can fluctuate daily and even within days. The investor needs to earn profit through the dividend declared by the company or by selling it at a higher price. If one is forced to sell the stock when the share price is low, it is a loss. This is market risk.
#2 Company Risk –
A share is a piece of ownership in a company. If the company faces business problems, the share price may fall. Most investors analyze the company’s financials and management before investing in the company’s stock.
#3 Liquidity Risk –
Since dividends are a good source of regular income in stocks, liquidity of the company is very important. A company may cut dividends or worse if it has liquidity problems. It may be difficult for him to repay the loan. This may adversely affect the company’s share price.
#4 Risks of tax eligibility –
The government keeps changing the tax rules based on the needs of the economy. If the sector in which investors have invested is adversely affected by any such revenue legislation, stock prices may fall in a short period of time.
#5 Interest Rate Risk –
The government also changes interest rates on deposits and loans based on the direction the economy is heading. Therefore, if interest rates rise, companies borrow at higher rates which can reduce their profits and affect stock prices. On the other hand, if the interest rate is too low, it indicates a slowdown in the economy and businesses also face losses. So it can be said that balanced rate regime is healthy for stock market.
#6 Regulatory Risk –
Many areas are in the hands of regulatory bodies. Like pharmaceuticals, tobacco, telecommunication etc. Any change made by the regulator may affect the business of all companies in the sector due to price reduction.
#7 Inflation –
Inflation is the overall increase in product prices. If the rate of inflation increases, companies have to spend more to procure the same amount of raw materials. A sudden increase in the rate of inflation can affect the profitability of companies. As a result, the share price falls. In addition, there are political risks, social risks, currency risks, etc. Therefore, whether it is safe to invest in the stock market depends on how investors manage these risks. The stock market has several ways to manage this risk—
#1 Variety –
If the investor invests a large sum of money in the shares of a company and the sector ever faces tough times, there is a risk of huge losses. Therefore, it is better to invest in multiple stocks. So that even if one part is damaged, the other should not fall under its shock.
#2 Research Before Investing –
Before investing in any share, it is necessary to do a good research about that company. This is also a good way to deal with risk.
#3 Investing is not emotional –
Nowadays almost every news channel, blog, online article contains a lot of information related to stock market. Almost all are ‘experts’ and they claim, they will help you earn huge money. But investing without proper research is bound to yield bad results.
#4 Investment Monitoring –
The stock market is volatile. Hence, it is necessary to build a portfolio of stocks. Because there may come a time when certain stocks have to be sold and some new ones have to be bought. In this case, only if one can regularly monitor one’s investment, those opportunities can be identified.
#5 Investing in Defensive Stocks –
Protective stock is owned by the company selling essential goods and services. Investing in such companies means that regardless of the state of the economy, most people are bound to spend on products or services. Therefore, the share price of such companies remains relatively stable. As a result, the overall risk of the investment portfolio here can be reduced.
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#6 Profitable Stocks –
If investors do not look for regular income in the form of dividends from their equity investments, companies that offer consistent and high dividends are considered strong companies.
#7 Invest according to risk tolerance –
There are various types of risks in investing in shares, so you have to remember when investing, what is your risk tolerance, i.e. how will it affect your life if there is a problem. Investments should be made accordingly.
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Tags: Investment Tips, Share Market News
