Skip to main content

What is Risk Management?

Risk is a part of our life, at every step we are overshadowed by various risks as each activity we do during the day involves some level of risk. It is a condition where there is a possibility of hazard from the desired outcome that is expected. For those who define risk as uncertainty, the greater the uncertainty, the greater is the risk. In other words, higher the probability of loss, greater is the probability of an adverse deviation from what is hoped for and therefore, greater is the risk.

However, these adverse effects or risks can be controlled and avoided through proper risk management. In other words, risk management involves identification, analysis and controlling risks which can threaten our life and assets.

Steps in Risk Management

Risk management involves various steps, which have to be taken into consideration in order to eradicate risk.

  • Identification of Risk

The first step in risk management is the identification of risk. Risk are events that causes problems, therefore it is essential to get to the root of risk. Risk identification must be recognized as the most important step as it involves digging into the source of risk which may be internal or external.

  • Risk Analysis

Once the risks have been identified, the next step is to analyse and measure that risks. Further, it is essential to study the risk and the hazard that an individual is exposed to.

  • Risk Assessment

Risks can be assessed depending upon the following factors:

a) Frequency of risk
b) Financial severity
c) Impact of the risk

Risk assessment involves measuring the frequency of occurrence of risk and the loss that it would result in. Some risks require prior attention to others depending upon the severity they would cause.

Dealing with Risks

We all are exposed to risks at all times, while travelling, while working, while driving, etc. Its just that some risks are more severe than others. Financial risks can be treated by the following four methods:

  • Avoiding Risk

The first step in risk management is to avoid the risk. This can be done by not undertaking activities that might cause risk. Like avoiding the risk of financial loss by not investing in the stock market. Despite being beneficial to manage risks, avoiding them would also mean avoiding the opportunities accompanied by a task.

  • Controlling Risk

Once the risk has conquered, the best method is to control the risk in order to avoid excessive loss that might be caused. For example, installing sprinklers and fire extinguishers in a petrol station, to control the loss that fire can cause.

  • Retaining Risk

The third step in risk management is retaining or accepting the risk. Risks that cannot be avoided are usually accepted. Self insurance is a method of accepting risks. A perfect example of this is life insurance. We cannot avoid risk to our life but accept the risks that we are exposed to. We cover ourselves in order to reduce these risks.

  • Transferring Risk

The fourth and the most commonly practiced method of dealing with risk is to transfer it. This refers to shifting the responsibility of the loss to another party. It is usually done by purchasing an insurance policy. It is a contract where the insurance company does not take over the risk but compensates certain percentage of the loss incurred by the risk. Thus, risk management involves identifying the risk and taking effective measures in order to control or reduce it.

 

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now