Money Goals
I had no clue what risk meant until markets taught me
Know the risks in the stock market and navigate them confidently.
Key insights
Understanding market risk is crucial for making informed investment decisions.
Market risks are of two types - systematic and unsystematic.
You can mitigate the unsystematic risk through diversification.
Thanks to multiple news headlines, I got introduced to the stock market. It made me curious to know more and invest. I wanted to know what it's like to participate in the economy, and relish a slice of its growth.
Of course, I did a thorough research and spoke to several stock market investors from my personal and professional circle for understanding market risk. To be honest, while I did get a broad understanding of the risks in the stock market, it was just a theoretical concept.
Do you know when I truly tasted risk? When I started investing. But don't worry, it's not as bad as it sounds.
A first-hand understanding of risk helped me make more confident and informed decisions. But some theoretical knowledge is essential for gaining a better grip of the practical nuances. Believe me!
Here is all that I learnt from the financially-wise professionals I spoke to.
What are the risks in the stock market?
Let’s begin with different types of risks in the stock market. This should help in understanding market risk, preparing you to navigate the market landscape with greater ease. With this knowledge, you may be able to build a stronger investment portfolio.
The risks in the stock market are broadly categorised as systematic and unsystematic risks. Understanding these gives a more detailed overview, allowing you to take charge of your investments.
Systematic risks in the stock market
These risks impact the entire stock market and are driven by various economic and geopolitical factors. These risks are uncontrollable, and you cannot eliminate them through diversification. Here are a few examples that will simplify understanding market risk.
Inflation risk
As inflation increases, your purchasing power decreases. This results in a reduced future value of the cash flows from your investments, reducing the real return in turn. Think about the price of your favourite food ten years ago and today. This should simplify the concept of inflation.
Liquidity risk
Liquidity risks in the stock market refer to the ability to buy or sell investments. Let’s assume you want to sell your stocks, but there are no buyers. In such a scenario, you may be compelled to sell your investments at a loss, something not desirable for investors.
Geopolitical risk
Changing international ties, trade policies, wars, etc., have a bearing on the stock market. For instance, after the US announced tariffs, the Nifty 50 and Sensex dipped. They went down by 3.24% and 2.95% on 7th April 2025, respectively.
Unsystematic risks in the stock market
These risks pertain to a particular company or industry. Unsystematic risks in the stock market don’t impact the overall market; you can mitigate them through diversification. Here are a few common examples of this risk.
Business risk
Business risk is the risk that the company you have invested in suffers losses or closes down. This could be due to various reasons like mismanagement, lack of innovation, excessive debt, etc. This risk is unique to each company.
Industry risk
Industry risk is also one of the unsystematic risks in the stock market and is industry-specific. Some factors driving these risks are changing consumer preferences, regulatory updates, etc.
Volatility risk
Let’s move on to understanding market risk by decoding volatility risk. This risk pertains to a specific stock. Certain stocks are more volatile, i.e. their price fluctuations more than those of other stocks, making that more risky.
Understanding market risk empowers your investment journey
Once you have a strong understanding of risks, you can make better investment choices. However, as a first-time stock investor, if the inherent market volatility seems overwhelming, you can explore Mutual Funds instead.
Mutual Funds are managed by professionals, reducing the need for individual research and monitoring. Focusing on diversification, Mutual Funds provide exposure to various asset classes, sectors, and companies through a single tool.
Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.
Mutual Fund investments are subject to market risk. Please read all scheme-related documents carefully. Axis Bank Ltd. is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Any purchase of Mutual Funds by Axis Bank’s customer(s) is purely voluntary and not linked to availment of any other facility from the Bank. This content is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future returns. Readers are advised to consult a qualified financial advisor before making any investment decisions. Terms and Conditions apply.
By Axis Bank Learning Hub Team
