TYPES OF RISK: The various types of risk in investment may be classified as follows: 1) Default Risk: It is the risk of issuer

of investment going bankrupt. An investor who purchases shares or debentures will have to face the possibility of default and bankrupt of the company.

2) Business Risk: Business risk means the risk of a particular failing and thereby your investment is lost.It is identifiable as the variation in firms earnings due to its business or product line.

3) Financial Risk: The financial risk is the function of the companys capital structure or financial leverage.

4) Purchasing power risk: The purchasing power risk of a security is the variation of real returns on the security caused by inflation.

5) Interest Rate Risk: The earnings of companies and the performance of their shares are sensitive to interest rates changes. Therefore potential variability of investment returns due to interest rate fluctuations is interest rate risk.

6) Market Risk: The market risk means the variability in the rates of return caused by the market up swings or market down swings.

7) Liquidity Risk: Liquidity risk arises from the inability to convert an investment quickly into cash. It refers to the ease with which a stock may be sold.

8) Systematic and unsystematic risk: The fluctuation in an investments returns attributable to changes in broad economic social or political factors which influence the return on investment is systematic risk. Unsystematic risk is the variation in returns due to factors related to individual firms or security.