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Credit Risk
The risk is that the issuer of the security will default, or not repay the principal amount. Valid for corporate bonds etc.
Liquidity Risk
The risk is that the security is not sellable or tradable in the market, in other words, your money gets stuck unnecessarily creating an asset-liability mismatch. Valid for bonds, stocks etc.
Market Risk
The risk is that financial markets are volatile in nature. Volatility means sudden swings in value-from high to low, or the reverse. The more volatile an investment is, the more profit or loss you can make, since there can be a big spread between what you paid and what you sell it for. But you also have to be prepared for the price to drop by the same amount. Valid for stocks, mutual funds etc.
Interest rate risk
This is part of market risk, which is valid for all market-related debt-based investments. Depending on the interest rate movement in the economy, the rates of interest on the investment instruments may go up or come down resulting in a subsequent reverse movement of their prices, thus creating big risk in times of economic uncertainty. Valid for bonds, Govt. securities, mutual funds etc. |
