Risk The dictionary meaning of risk is the possibility of loss or injury.

Any rational investor before investing his wealth in any security. He analysis the risk associated with particular security. The actual return he gat may vary from the expected return and risk which is expected. The down side of risk is cause by many factors. They are common to all securities all specific to a particular security. The investor in general would like to analyze the risk factors and through the knowledge of a risk plans him to make a portfolio in such a manner so as to minimize risk associated with the investment. Risk consist of two components Systematic risk Unsystematic risk The systematic risk is caused by the factors external to the company and controllable by the company. The systematic risk affects the market as a whole. In case of unsystematic risk the factors are specific, unique, and related to a particular industry or company Systematic risk The systematic risk affects the entire market. The economic conditions, political situations and sociological changes affect the security market. The factors are beyond the control of the corporate and investor. The investor can not control them. The is subdivided into Market risk Interest risk Purchase power risk Unsystematic risk The unsystematic risk is peculiar to a firm or an industry. It stems from a managerial efficiency, technological change in the production process, availability of raw material, changes in the customer preferences, and labor problems. The nature and magnitude of above mentioned factors differs from industry to industry and company to company. The have to be analyze separately for each industry and firm. Broadly unsystematic risk can be classified into Business risk Financial risk Risk measurement Understanding nature of risk is not adequate unless the analyst is capable of expressing it in some quantitative terms. Measurement can not be assured of cent percent accuracy because risk is caused by

numerous factors such as social, political, economic and managerial efficiency. The statistical tools used to quantify risk are Standard deviation a) A measure of dispersion of set of data from its mean, the more spread apart the higher the deviation. b) In finance, standard deviation is applied to annual rate of return of an investment to measure the investment volatility (risk). A volatile stock would have a higher standard deviation, in mutual funds standard deviation tells us how much the return is deviating from the expected normal return. Standard deviation can also be calculated as a square root of variance. Beta Beta describes the relationship between the securities, return and index returns Beta=1.0 One percent change in market index returns causes exactly one percent change in the security return. It indicates that security moves in tandem with market. Beta =+0.5 One percent change in market index return causes 0.5 percent in the security return. The security is less volatile as compared to market Beta=+2.0 One percent change in market index return causes two percent change in security return. The security return is more volatile. When there is a decline of 10% in market returns. The security of beta 2 would give negative return of 20%. The security more than one beta value will be considered as risky. Negative beta Negative beta value indicates that the security returns moves in opposite direction to the market return. A security of beta-1 would provide a return of 10%, if the market return declines by 10% and vice-versa. Rate of return The compounded annual return on a mutual scheme represents the return to investors from a scheme since the date of issue. It is calculated on NAV basis or price basis.