15 Types of Risk in Investment Every Indian Should Know (2026 Guide)

By
Hemant Beniwal
-
34
15 Types of Risk In Investment Everyone Should Know

Last Updated on April 8, 2026 by Hemant Beniwal

“Risks come from not knowing what you are doing.” – Warren Buffett

Someone asks me for a “risk-free investment with good returns” and I genuinely do not know where to begin. Not because the question is silly. Because the word “risk” is doing so much work in that sentence – and most investors have only one risk in mind when they say it.

Losing money. That’s it. One risk. There are at least 18.

⚡ Quick Answer

Risk in investing is not just losing money – it is any uncertainty that makes your actual return differ from your expected return. There are 18 types, split broadly into investment risk, inflation risk, systematic vs unsystematic risk, debt-specific risks, and behavioral risks. The most dangerous ones for retirement portfolios are concentration risk, information risk, and sequence of returns risk.

The Two Most Basic Types of Risk

Before getting into the full list, understand the two foundational risks every investor faces:

1. Investment Risk

The possibility of losing principal. You invest Rs 5 lakh in equity and get back Rs 4 lakh after 3 years. This is what most people mean when they say “risky.” It can be measured by standard deviation.

2. Inflation Risk

Losing purchasing power even when you do not lose money. You invest Rs 5 lakh in debt and get Rs 10 lakh after 8 years. But Rs 10 lakh in 2026 buys what Rs 6 lakh bought in 2018. You doubled your money and still lost ground. Inflation is a slow, invisible tax on wealth – and the most underestimated risk for retirement.

🚫 The “Safe Investment” Illusion

FDs and debt funds feel safe because they do not show negative returns. But at 6% return and 7% inflation, you are losing purchasing power every year. A corpus that feels adequate at retirement may be dangerously inadequate by age 75. Safety from investment risk does not mean safety from inflation risk.

Systematic vs Unsystematic Risk

3. Systematic Risk

Also called market risk or non-diversifiable risk. It affects the entire economy – an interest rate hike, a pandemic, a geopolitical crisis. You cannot diversify away from systematic risk within a single country’s market. Beta measures how sensitive your investment is to this risk.

4. Unsystematic Risk

Affects a single company or sector. Bad management, product failure, regulatory action against one industry. This is diversifiable – owning 20 different companies across sectors eliminates most of it. The famous “don’t put all eggs in one basket” advice addresses this risk specifically.

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Risks in Debt Investments

This is the section most investors skip – and most advisors gloss over. Debt is not safe. It has its own set of risks, and ignoring them has cost investors dearly.

5. Credit Risk (Default Risk)

When a company cannot pay principal or interest. SBI pays 7%. A small NBFC NCD pays 12%. The extra 5% is not generosity – it is the price of credit risk. Companies that defaulted in India – CRB Capital, IL&FS, DHFL, Yes Bank AT1 bonds – all paid “attractive” rates before defaulting. Bank FDs have credit risk too; DICGC covers only Rs 5 lakh per depositor per bank. Beyond that, you carry full credit risk.

6. Interest Rate Risk

Bond prices move opposite to interest rates. If you hold a 10-year bond at 7% and rates rise to 8%, your bond’s market value falls. This does not matter if you hold to maturity – but matters enormously in debt mutual funds, which mark to market daily. The longer the duration, the higher the interest rate risk.

7. Reinvestment Risk

You lock in at 9% for 5 years. When the FD matures, rates are 6.5%. You must reinvest at lower rates. This compounds over decades. Retirees who depend on interest income face this risk every time their FDs roll over.

8. Liquidity Risk

You hold bonds but there are no buyers when you need to sell. You may have to accept a steep discount to exit. Many corporate bonds in India have paper yields that look attractive but trading volumes near zero – meaning you are effectively locked in until maturity or default.

9. Country Risk (Sovereign Risk)

Even government bonds carry this risk. PIGS countries in Europe – Portugal, Ireland, Greece, Spain – showed that sovereign debt can be restructured. In India, some government-backed company deposits have deferred maturity payments in the past.

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Other Investment Risks

10. Exchange Rate Risk

You invest in US equities and earn 12% in dollar terms. But the rupee strengthens 4% against the dollar that year. Your actual INR return is 8%. NRIs face this constantly – a strong rupee erodes the value of overseas earnings when repatriated. Always factor currency risk into cross-border investment decisions.

11. Timing Risk

Investing a large amount at a market peak, or exiting at a trough. Don’t take this risk. The solution is not timing – it is systematic investing through SIPs and not letting headlines drive decisions.

12. Volatility Risk

Day-to-day price fluctuations in equity. Measured by standard deviation. High volatility is not the same as high risk if your time horizon is long – but it tests investor psychology brutally. Most people abandon good investments during volatile periods and lock in losses.

13. Political / Regulatory Risk

A government policy change that hurts a sector overnight. Telecom, sugar, oil & gas, pharma, real estate – all have seen sudden regulatory changes in India that wiped out significant value. No sector is immune.

14. Valuation Risk

Buying a good company at the wrong price. Infosys was a great company in 2000 and in 2010 – but investors who bought at the 2000 peak waited years just to break even. Good business + expensive valuation = poor investment.

15. Business Risk and Technology Risk

Industries become obsolete. Pagers, typewriters, audio cassettes, floppy disks – all had thriving companies. Kodak failed not because it made bad film but because film became irrelevant. Today: consider exposure to retail banks, print media, and traditional auto before assuming safety.

THREE RISKS THAT DESTROY RETIREMENT PORTFOLIOS SPECIFICALLY

1. Sequence of Returns Risk – a bad market in Years 1-3 of retirement wrecks the corpus permanently

2. Longevity Risk – outliving your money by 5-10 years is more common than people plan for

3. Concentration Risk – ESOP-heavy portfolios where one company = 40-60% of net worth

Most standard risk questionnaires measure none of these three. This is why retirement planning needs a specialist lens.

16. Execution Risk

The gap between the price you see and the price you actually get when the trade executes. Affects direct equity investors more than mutual fund investors. In illiquid stocks, execution risk can mean buying at significantly higher or selling at significantly lower prices than expected.

17. Concentration Risk

All your eggs in one company, one fund, or one asset class. I have seen it with Satyam. I have seen it with ESOP-heavy portfolios where 60% of someone’s net worth sits in their employer’s stock. When the company struggles, the investor faces both income risk (job) and wealth risk (stock) simultaneously. Diversification is cheap insurance.

18. Information Risk

Decisions made on incomplete or misleading information. The mutual fund ad showing 100% returns – point-to-point returns cherry-picked from a specific date. The loan “at 9%” that is actually 16% once you understand flat vs reducing rate. The NBFC deposit paying 12% where the credit risk is buried in fine print.

“If you torture numbers enough, they will confess to almost anything. The asterisk – Aster-RISK – always hides something. Train yourself to look for it.”

– Hemant Beniwal, CFP, CTEP | Founder, RetireWise

There are other risks too – institutional risk, operational risk, geopolitical risk, counterparty risk, management risk, prepayment risk, legal risk. The list is genuinely long.

The next time someone asks for a “risk-free investment,” you know what to say. There is no such thing. There is only choosing which risks you are willing to carry – and which ones you understand well enough to manage.

Read next: What is Financial Planning? The 6-Step Process That Actually Works

Understanding risk is step one. Managing it in retirement is another story.

The RetireWise Retirement Blueprint stress-tests your corpus against sequence risk, inflation risk, and longevity risk – not just market returns. SEBI Registered. Fee-only.

See the RetireWise Service

Equities are risky. Debt is risky. Cash is risky (inflation). Doing nothing is risky. The question was never “how do I avoid risk.” The question has always been “which risks am I taking – and do I understand them well enough to stay the course?”

Risk comes from not knowing what you are doing. Now you know.

💬 Your Turn

Which of these 18 risks have you personally experienced in your investments? And which one surprised you most on this list? Tell me below.

34 COMMENTS

  1. superb article with perfect timing….yesterday itself I was thinking to ask you, what does it mean when people say that don’t purchase ABC shares, that is “risky”. UK market is not doing good etc etc… So what risk they are talking about….
    After reading this article I have a query in my mind that how could a common man who is not well versed with financial manipulations can invest his hard earned money?

  3. Another good article. The biggest risk in life is not taking a risk. but of course, it should be informative risk where you have idea about your risk taking capability, potential upside/downside of investments and patience, conviction to stay invested in volatile incidents.

    • Hi Jagbir,
      Fully agree with this “The biggest risk in life is not taking a risk.” If you take calculated risk & still loose – you gain wisdom. 😉 But every financial decision one take should be backed by proper logic/reasoning & not intuitions.

  5. A good research and truth regarding the investment & actual point to be keep in mind before investing and comparing the market inflation and risk element with your investment products

  6. Hi Hemant
    Most of the investors want to know about an investment which will give them maximum returns without mentioning anything about their risk appetite. They don’t understand that risk and return are closely related. A person with a low risk appetite should not expect high returns from his investments.

    • Hi Anil,
      Investors need to understand what you have written here.
      People need to taste risk before eating returns.

  7. Wow!

    A well written article. I can never imagine all these risk in various investments.
    Thanks to aware me about this.

    Umesh

    • Hi Umesh,
      So next time before investing – ask your agent what are risk associated with the product. If he say NO Risk – share link of this article with him. 🙂

  8. Hi Hemant , Excellent article .
    it should be informative risk where you have idea about your risk taking ability. Conclusion is” NO PAIN NO GAIN” It is biggest Risk to invest in Mkt. without know such above “RISKS”

    • Hi Dinesh,
      You right said “NO PAIN NO GAIN” as the quote is “But he that dares not grasp the thorn Should never crave the rose.”

  9. hi Hemant , excellent article …..I think most of the common investor in India are taking calculated risk by mixing insurance with investment and end it up by getting 4 to 5 %return of their hard earned money…LIC is the biggest investment avenue for them…they just want to get some return from their investment…this type of mentality prevent them to get themselves adequately insured by term plan…when it comes to health insurance, most of the people think that they dont require health insurance and by not opting this they are taking dual risk-i) health related risk & ii) investment risk…they think investment in mutual fund is very risky hence they keep thousand mile distance from this…I dont agree with the sentence”the biggest risk in life is not taking risk”…they are taking heavy risk by investing in insurance….

    • Hi Dr Koushik,
      I don’t agree that “common investor in India are taking calculated risk by mixing insurance with investment” – I think they do because the don’t understand even basics. 🙁

  10. Good article..we should know what we are getting into? Avoiding risk is no solution as “The person who risks nothing, does nothing, has nothing, is nothing, and becomes nothing. He may avoid suffering and sorrow, but he simply cannot learn and feel and change and grow and love and live.
    The Aster-risk was cherry on the top of cake.

    But everyone does not have the same temperament or would like to take same risk. Giving an analogy: Some like thrill of T20 and some like the gentlemanly Test match. We need to understand ourselves and how much we can take.
    And risk taking capability also changes with age. A person in 20’s risk taking capability is different from that of 55 year old.

    So debt might be risk free or have less risk and equity to be more risky..but one needs to take a calculated risk..

  12. Dr Jaan Sidorov presents this week’s collection of risky, often scary posts.

    Please tell your readers.

    While it’s not mandatory to give a link back, it’s the way that carnivals work best. Please remember to post about it on your blog because it helps us all.

    Thanks!

  13. Dear Mr Hemant,

    I have read your articles on TFL guide. They are really helpful to me in planning my goals. Sir, i have some queries regarding my current investments, please suggest if they are good or i need to withdraw.

    1. HDFC SL CREST –premium(50000/-) jave paid one premium & about to pay second.
    2. Kotak mahindra super advantage (30000/-) yearly. paid 2.

    Please put some light on these investment.

    Regards
    Yashu Handa

  14. Dear Mr Hemant,

    I have read your articles on TFL guide. They are really helpful to me in planning my goals. Sir, i have some queries regarding my current investments, please suggest if they are good or i need to withdraw.

    1. HDFC SL CREST –premium(50000/-) jave paid one premium & about to pay second.
    2. Kotak mahindra super advantage (30000/-) yearly. paid 2.

    Please put some light on these investment.

    Regards
    Yashu Handa

    • Hi Yashu,
      Both of these policies are investment relates & are really expensive. HDFC SL Crest is Highest NAV guaranteed fund – which was understood by investors as Highest Return guaranteed fund. Once the earlier products expired, Irda did not approve any new product based on the highest NAV. The insurance regulator is not comfortable with the way these products are being pitched to customers. Problem is – these products are not expected to do as well as simple equity oriented schemes, since insurers tend to invest substantial amounts in debt. My suggestion is go & sit with your agent and discuss this.

  17. hi every body. i wanna use this article and i need name of the writer of it and the refrences. can you help me?

  18. all the articles are very much to understand. Beniwal ji u have excellent knowledge of market and risk factors.

  19. Hi Hemant,

    Excellent article.
    Good example of Regulator Risk is what a beating Indraprastha Gas has taken yesterday because of regulatory dispension

    Regards,
    Sudhir Goyal

  20. Wooh this was very exiting. It taught me the different types of risk that i can face when investing. Good work

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