Unsystematic risk is the risk that comes from problems in a single company or a particular industry. This risk does not affect the entire market. You can reduce unsystematic risk by investing in different types of companies and sectors. This is called diversification. It spreads your money and protects you if one company performs badly.

What Exactly Is Unsystematic Risk?

Unsystematic risk is the type of risk that affects only a specific company or industry. It is also called company-specific risk or business risk. This risk happens due to issues like poor management, loss of customers, labour strikes, legal problems, fraud, or low profits. It does not affect the entire stock market. For example, if one company reports a loss, only that company’s stock may fall, not the full market.

This type of risk is avoidable. Investors can reduce it by spreading their money into different companies, sectors, and types of investments. This way, even if one investment fails, the others can balance the loss.

What Are Common Examples of Unsystematic Risk?

Here are some common examples that cause unsystematic risk:

• A company’s CEO resigns suddenly, and investors panic.
• A business is caught in a legal case or scam.
• One company launches a product, but it fails in the market.
• A labour strike stops the company’s operations.
• A company loses a big customer and its income drops.

All these events impact only that company. If you invest only in that company, your money is at risk. But if you invest in many companies, the effect becomes smaller.

How Is Unsystematic Risk Different from Market Risk?

Unsystematic risk affects only one company or sector, but market risk (also called systematic risk) affects the whole stock market. You can reduce unsystematic risk, but market risk cannot be avoided. Here’s the simple difference:

• Unsystematic Risk: Company-related. For example, if Tata Motors stock falls due to internal issues.
• Market Risk: Economy-related. For example, if the whole market falls because of a global crisis.

You must understand both risks to make better investment choices. Diversification helps with unsystematic risk, while proper planning helps with market risk.

How Can You Minimize Unsystematic Risk Easily?

The easiest way to minimize unsystematic risk is to not put all your money in one company. Spread your investments in many sectors like banking, IT, pharma, auto, and FMCG. This is called diversification. It balances risk and gives you more safety.

Here are simple ways to reduce unsystematic risk:

• Invest in at least 10–15 companies.
• Choose companies from different sectors.
• Invest in mutual funds—they are already diversified.
• Stay updated about company news and performance.
• Don’t follow tips blindly—do your research.

By following these steps, you can protect your capital and earn better returns over time.

Why Should Every Investor Know About This Risk?

Many beginners make the mistake of investing all their money in 1–2 stocks based on tips or emotions. If any of those companies fail, they lose heavily. That’s why knowing about unsystematic risk is very important.

It helps you become a smarter investor. When you understand that not every company is safe, you will take steps to protect your money. Diversification and regular review of your portfolio will keep your losses low and profits stable.

How to Build a Safe and Balanced Investment Portfolio?

To build a strong portfolio that reduces unsystematic risk, follow these tips:

• Mix of large-cap, mid-cap, and small-cap stocks.
• Invest in equity, debt, and gold to balance risk.
• Use SIP in mutual funds to invest monthly in a disciplined way.
• Do not rely on one stock or one sector for all your returns.
• Review and rebalance your portfolio every 6 months.

This approach will keep your investments steady even if one or two stocks do not perform well.