In the last video we discussed about returns. So, it is only logical that we now discuss about risk is because risk and returns go hand in hand, when we take more risk, the chances of getting a higher return is always there, the chances may be that we may lose more money also. So, when the risks are high returns are likely to be more, there are chances also when the risks are low returns are likely to be less. When we are discussing risk in the context of mutual fund investments, we are basically talking of two types of risks, one is a systematic risk and one is the unsystematic risk not only in mutual fund, any kind of investment in the stock market basically involves these two kind of risks that is systematic risk and unsystematic risk. Systematic risks are uncertainties that are inherent in the entire market or a particular market segment.

Now, these cannot be mitigated, that is why they are also known as market risks are under diversifiable risks. On the other hand unsystematic risks are specific to a particular company or to a particular industry. That is why by having a portfolio where we have the stocks of or securities or multiple number of companies across multiple number of industries, we can diversify the risk, which are systematic, and that is why these sources from a systematic risk also known as diversity cable risks. We will later see in the course that when we have a portfolio containing our well diversified 30 securities, then the unsystematic risk is almost negligible. Within systematic and systematic ways, we have some other types of risks as well. Now, let us discuss each of them one by one.

The first risk that we discuss is credit risk, which is also known as default risk. credit risk occurs when a company or Individual fails to return the credit what has been given to him. So, if a company goes bankrupt bankrupt and is unable to pay his returns, there is a credit risks. Banks normally face this kind of risk when their assets become non performing. The next risk that we discuss is the country risk in the context of mutual fund investment, this becomes applicable if suppose, we are invested in our mutual fund which is exposed towards a particular country, let's say we have exposure towards emerging markets, then the countries including the emerging markets, their their situation, processes a risk for the mutual fund investment. Next, the political situation in a country needs to be considered as a risk.

So, the political situation in every country tends to go from up and down. And there are various kind of factors which impact the situate politics of the country. So, this processes into inherent risk in the investment That is made in that particular country. Next we discuss reinvestment risk, reinvestment risk occurs, let's say for example, so, you are invested about 10 lakh rupees in a fixed deposit at 9% interest rate. Now, this investment will mature in 10 years, then it has to be seen whether at the end of the maturity period you will continue to get 9% interest rate or a higher interest rate or the interest rate will become lower. Now, this is normally his decision to take, supposing every bank provides a higher interest rate for short durations and lower interest rate for long duration.

Now, let's say the bank is providing a one year fixed deposit at 10%. Whereas a five year fixed deposit 7% now, the decision is whether we should invest for five years at 7% or invest for one year at 10%. Now, at the end of one year, it is likely that the interest rate might come down and over a period of five years. It is possible that the interest rate gate goes below 7%. So, this is a decision which needs to be taken and this has got a risk involved in the in the process of decision making. Next we discuss interest rates, we have discussed it in brief earlier, we know that when the interest rates go down bond markets perform very well and when the interest rate goes up bond markets fall.

So, this interest rate which keeps on changing constantly and is dependent on the government's policy, the poses a risk for the investors. The next risk we discuss is the foreign exchange risk, we know that the foreign exchange market keeps on fluctuating. So, this fluctuation in foreign exchange poses poses a risk for the investors especially the companies which are heavily involved in important export are very heavily impacted by the foreign exchange fluctuations. next recipe discusses the inflationary risk. Now we know that if the inflation increases in the value of money decreases. So we have a riskier if the increase inflation increases, then by the time our investment matures, the value of his value of the money or the purchasing power of that money may reduce this constitutes the inflationary risk.

The last piece that we'll discuss is the market risk. The market risk is the risk that the value of the investment may fall due to volatility of the market. We know that the equity market is more volatile than the debt market. And so the volatility with the market may see that the investments value is reduced.