Risk Framework: Default, Liquidity & Platform Risk

Every investment — from stocks to bonds to P2P lending — carries some risk. As Indian investors explore new products like SGBs, REITs, P2P lending, and global funds, it’s essential to understand risks beyond returns.

A simple three-pillar framework helps you assess:

Default Risk (will you get your money back?)
Liquidity Risk (can you exit when you want?)
Platform Risk (is the broker/exchange safe?).

1. Default Risk

Definition: The chance that the borrower or issuer fails to repay.
Examples: Corporate bonds defaulting, NBFC credit issues, or P2P borrowers missing payments.
How to Manage:
- Prefer AAA-rated bonds or government securities.
- Diversify across issuers.
- Check credit history.

2. Liquidity Risk

Definition: Difficulty in converting your investment into cash quickly at fair value.
Examples:
- Real estate (can take months to sell).
- Corporate FDs and unlisted bonds.
- P2P loans locked for years.
How to Manage:
- Match investments with your time horizon.
- Keep 10–15% in liquid funds/FDs for emergencies.
- Use secondary markets (NSE/BSE bonds).

3. Platform Risk

Definition: The risk that the broker, exchange, or platform itself fails.
Examples:
- P2P lending apps shutting down.
- Brokerage tech glitches during high volatility.
- Unregulated foreign exchanges.
How to Manage:
- Stick to RBI/SEBI-regulated platforms.
- Avoid over-concentration in one platform.
- Track financial health of intermediaries.

Risk Framework Comparison

Risk Type	Definition	Example in India	How to Manage
Default Risk	Issuer fails to repay	IL&FS bond default	Diversify, prefer AAA ratings
Liquidity Risk	Cannot exit easily	Unlisted corporate FDs	Match horizon, use liquid funds
Platform Risk	Broker/platform failure	P2P app shutdown	Stick to RBI/SEBI regulated players