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Two Investment Risks Every Bangladeshi Should Know about

By Ashikur Rahman Tusar

Software Developer

EDGE AMC Limited

Posted on: 22 May, 2019

Last Updated: 17 August, 2026

What if the biggest threat to your money isn't a bad investment but the one you never saw coming? Many Bangladeshis have learned this the hard way through MLM and Ponzi schemes, chasing returns while ignoring the risks hiding underneath. 

In this post, we break down two important risks every investor should be aware of.

Default/Credit Risk

Default risk is the risk that a borrower will be unable to fulfill the obligations of a contract — one of the most common forms of financial risk.

Consider a fixed deposit: when you place money in a fixed deposit with a bank or financial institution, you're effectively lending that money to the institution at a predetermined rate. The bank then lends this money to others. If the bank's borrowers fail to repay, there's a chance the bank won't be able to return your interest or even your principal. This means weaker banks or financial institutions carry a real risk of being unable to repay depositors at all.

Main takeaway

Carefully consider the health of a bank or financial institution before making an FDR. Chasing the highest interest rate is a risky strategy — the extra 1% often isn't worth the added risk.

Counterparty Risk

Counterparty risk is a type of credit risk. It is the likelihood that one party in a transaction fails to fulfill its contractual obligation. It is a risk that can arise in credit, investment, and trading transactions alike.

For example, if you trade stocks through a brokerage firm, your shares are recorded in CDBL against your BO account — but any investable cash held with the brokerage is a different story. If the brokerage runs into financial trouble, retrieving that cash can become difficult. In the worst case, a broker could even sell your shares without permission and use the proceeds.

Main takeaway

Choose your counterparties carefully to minimize this risk. Start by reviewing their balance sheet and income statement. A helpful tip here is that, counterparty risk rises when debt is high and profits are low. Conversely, if the counterparty is backed by a large, reputable institution, that risk is reduced, since such institutions are more likely to be bailed out during financial stress.

Frequently Asked Questions

Q: What is default risk?
A: The risk that a borrower such as a bank you've placed a fixed deposit with is unable to repay interest or principal as agreed.

Q: What is counterparty risk?
A: The risk that another party in a transaction such as a brokerage holding your cash fails to meet its obligations.

Q: How can I reduce default risk on a fixed deposit?
A: Choose financially healthy banks or institutions rather than chasing the highest interest rate.

Q: How do I know if mutual funds are a safe investment option?
A: Mutual funds are structured to keep investors' interests protected. A fund trustee and custodian ensure that client assets are kept separate from the asset manager and that the manager acts in investors' best interest. To learn more about the safeguards built into mutual funds, take a look at this article. 

Links

• Benefits of Investing in Mutual Funds 
• Master Guide to Mutual Funds (PDF)
• Explore Our Mutual Funds
• How to Invest in Mutual Funds
• How Mutual Funds Are Structured to Protect Investors