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Risks and Returns Involved in the Equity Market

Risks and Returns involved in the Equity Market

  • Risks Involved in Equity Market:-
  1. Market Risk-  This is meant to refer to the risk of fluctuating stock price investments because the securities prices are decided by the investors through open transparency system of demand and supply.
  2. Volatility- Stocks have a significant degree of volatility, which means that their prices can change considerably in a brief span of time. 
  3. Currency Risk- Also referred to as currency risk, it is a result of fluctuations in the value of one currency concerning another on the worldwide markets.
  4. Commodity Risk- This covers the changing prices of commodities. Commodities prices fluctuate based on the supply of the commodities which can vary due to rainfall, and change in seasons like extreme temperatures.  
  5. Concentration Risk- If you invest in only one stock or a limited number of stocks in a single sector, then you face a higher chance of losing money if those stocks underperform.
  6. Liquidity Risk- This is a reference to the possibility of being unable to swiftly buy or sell stocks at a specified price. This occurs in penny stocks which are stocks that trade at a very low price, typically below Rs 10, and have a low market capitalization. These stocks are mostly illiquid meaning there is no guarantee that these stocks will be traded regularly.
  7. Market sentiments- Market sentiment is the term used to describe the general perspective or attitude of investors toward certain securities or the overall financial market. Future stock prices are predicted by taking into account variables including the general public's perception, views, news, and previous stock prices.
  • Returns in the Equity Market:- 
  1. Capital Appreciation- The term "capital appreciation" describes an increase in a stock's value over time if the company performs well over the years.
  2. Nominal return- Gains from selling the stock for more than you bought it are known as nominal returns. 
  3. Dividends- They are regular payments that an organization pays to the shareholders, from its profit.

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