INVESTMENT AND PORTFOLIO

MANAGEMENT
BY
V MANOJ KUMAR
200A1E0006
 MEANING OF RISK
Risk refers to the possibility that the actual
outcome of an investment will defer from
its expected outcome
 possibility of loss or injury
Probability of non realization of expected return
Variability of return
“deviation of actual return from the
expected return”
 COMPONENTS OR TYPES OF RISK

CALCULABLE RISK NON-CALCULABLE RISK

SYSTEMATIC RISK UNSYSTEMATIC RISK

Market risk Business risk
Interest rate risk financial risk
Purchasing power risk management risk
Potential power risk liquidity risk
International risk default risk
Natural risk
NON-CALCULABLE RISK
A psychological negative state of
mind. Which cannot be calculated because it
different in different individuals.
CALCULABLE RISK
deviation between actual and
expected return assigned with probabilities
Calculable risk are two types
1. Systematic risk
2. Unsystematic risk
SYSTEMATIC RISK :- effect the entire market in the same way.
Effect cannot be changed or diversified.
UNSYSTEMATIC RISK:- risk varies company to company. Effect
cannot be changed or diversified.

RISK

unsystematic risk
systematic risk
0 X
TIME
TOTAL RISK= SYSTEMATIC RISK+UNSYSTEMATIC
RISK
TYPES OF SYSTEMATIC RISK
1. MARKET RISK:- due to alternate forces of bull
& bear market
Forces are tangible & intangible.
2. INTEREST RATE RISK:- due to fluctuation in
market interest rate
Interest rate depend on demand and supply of
security.
3. Purchasing power risk:- due to loss of
purchasing power of currency.
4. International risk:- due to change in
international factors.
5. Political risk:- due to political instability.
6. Natural risk:- due to natural claimates.
 TYPES OF UNSYSTEMATIC RISK

1. BUSINESS RISK:- due to change in profit (profit is

influenced by the inability of firm)
2. Financial risk:- due to wrong capital structure (more
the financial leverage ,more the risk)
3. Default risk:- variability of return due to default made.
4. Managerial risk:- due to difference in managers and
owners ( associated with agency cost)
5. Liquidity risk:- Risk of liquidation of company