INVA Capital Markets
Risk Policy
Risk Disclosure
a) Credit Risk: Debt securities in which INVA Capital Markets invests carry a credit risk regarding the repayment of principal or interest by the borrower. This risk is influenced by both micro-economic factors, such as the financial health and ability of the borrower, and macro-economic factors, including industry performance, competition from imports, export competitiveness, input costs, trade barriers, and foreign currency conversion rates. Credit risks of most issuers of debt securities are rated by independent rating agencies. These ratings range from "AAA" (denoting "Highest Safety") to "D" (denoting "Default"), with several distinct grades between these extremes. The highest credit rating typically offers a lower yield for the borrower, while lower-rated borrowers raise funds at higher costs due to the increased credit risk. The minimal grade for rated instruments shall not be below A+.
b) Price-Risk or Interest-Rate Risk: Debt securities, including those in real estate and crypto assets, in which INVA Capital Markets invests, can be classified as either fixed-income or floating-rate securities. Fixed-income securities have a predetermined coupon rate paid at regular intervals, while floating-rate securities have coupon rates that "float" in line with a benchmark rate, such as MIBOR or a 1-year Treasury bill. Market conditions, issuer performance, trading volumes, and other factors may result in price fluctuations over the short, medium, or long term, potentially leading to permanent price corrections. Investors may experience losses, including the possibility of losing some or all of their investments. Fixed-income securities, including government securities, bonds, debentures, and money market instruments, are subject to price-risk. Generally, when interest rates rise, the prices of fixed-income securities fall, and when interest rates drop, prices tend to increase. The extent of price changes depends on factors such as the coupon rate, payment frequency, maturity period, and the overall interest rate environment. For corporate or institutional fixed-income securities, such as bonds or debentures, prices are also affected by the issuer's credit rating and the liquidity of the securities. Real Estate and Crypto Price Risk: The value of real estate investments is subject to market fluctuations, changes in demand, and other factors specific to property types and locations. Similarly, cryptocurrency investments are highly volatile and susceptible to significant price swings influenced by market sentiment, regulatory changes, and technological advancements.
c) Spread Risk: In floating-rate securities, the coupon is based on a spread or markup over a benchmark rate. The spread may fluctuate depending on market conditions, which can result in either favorable or adverse effects on the overall returns .This also applies to certain crypto assets or equity investments that may have floating-rate components tied to market benchmarks.
d) Reinvestment Risk: Investments in fixed-income securities, including real estate and crypto, may carry reinvestment risk. When interest or maturity payments are received, prevailing interest rates or market conditions may differ from the original coupon rate or expected returns, leading to the reinvestment proceeds being invested at lower rates or unfavorable prices. Crypto Reinvestment Risk: In the case of cryptocurrency investments, reinvestment risk also exists in the form of potentially lower returns when reinvesting in different assets within the crypto space or moving funds between various cryptocurrencies, depending on the market's performance.
e) Liquidity Risk: Liquidity risk is a potential concern for INVA Capital Markets, as the ability to execute buy or sell orders depends on the liquidity and marketability of the securities, including those in real estate, crypto, and equity investments. Liquidity risk is typically measured by the spread between the bid price and the offer price quoted by dealers. Securities listed on stock exchanges tend to carry lower liquidity risks; however, the ability to sell these securities can be limited by overall trading volumes. Additionally, different segments of the financial markets may have varying settlement cycles, which could be extended by unforeseen circumstances. Real Estate Liquidity Risk: Real estate investments can be relatively illiquid, as properties may take time to sell or may be subject to market conditions that affect their saleability. There is no guarantee that investors will be able to redeem their investments at their discretion, and the liquidity for real estate investments will depend on the prevailing market conditions. Crypto Liquidity Risk: Cryptocurrency markets are often highly liquid but can also experience periods of low liquidity, especially for smaller or less traded coins. Liquidity in crypto markets can fluctuate dramatically based on market demand, regulatory developments, and other external factors. Certain investment options, including real estate and cryptocurrency, may be illiquid, meaning there is no guarantee that investors will be able to redeem their investments at their discretion. The liquidity of these investments will depend on prevailing market conditions.
f) Concentration Risk: Certain investment options within INVA Capital Markets may be exposed to concentration risk. This arises when investments are focused on a limited number of securities, assets, or sectors. The performance of a small group of securities or funds may significantly impact the overall performance of the investment, which could result in higher volatility or potential losses for investors.
g) Key Management Risk: The success of the various investment options managed by INVA Capital Markets is largely dependent on the experience, judgment, and expertise of the management team. The loss or departure of key individuals involved in the investment decision-making process could materially affect the company's ability to identify, select, and manage attractive investment opportunities. The ability of INVA Capital Markets to deliver consistent performance depends on the skill and acumen of its leadership team.
h) Valuation Risk: Certain investment options, including those in private companies, real estate, or cryptocurrency, may involve investments that are not publicly quoted or listed on recognized exchanges. The valuation of these assets may be subjective and could be less reliable compared to market-traded securities, leading to potential discrepancies in reported values and perceived performance.
i) Macro Risk: INVA Capital Markets' investment options may be affected by macroeconomic factors such as interest rate movements, inflation, fiscal and monetary policies, changes in sovereign ratings, and other broader economic events. These factors can impact the performance of investments across multiple sectors and asset classes.
j) Default Risk & Credit Risk: Certain investment options within INVA Capital Markets may be subject to the risk of non-repayment or delayed repayment of principal or interest. This could result in partial or total loss of investment value. Additionally, changes in the credit ratings of issuers may affect the value of debt-related investments.
k) Market Risk: INVA Capital Markets' investment options may experience fluctuations in value due to broader economic developments or other events that impact the entire market. Such events may include changes in market sentiment, political developments, economic downturns, or other factors that affect asset prices.
l) Volatility Risk: INVA Capital Markets' investments may be exposed to volatility risk, meaning the value of investments could experience significant price movements. High levels of market volatility can negatively impact the performance of investments, potentially leading to losses.
m) Geopolitical Risk: INVA Capital Markets' investments may be subject to geopolitical risks, including those related to the geographical, political, and economic conditions of the jurisdictions in which they operate. Changes in political regimes, international relations, trade policies, or regional instability could adversely affect investment returns.
n) Regulatory Risk: Changes in regulations, including tax laws, government policies, and financial market regulations, may impact the performance of INVA Capital Markets' investments. Regulatory risks could include alterations in the legal framework governing particular industries, markets, or asset classes, leading to potential changes in returns or operational processes.
o) Exchange Rate Risk: Certain investment options within INVA Capital Markets may be exposed to exchange rate risk. This arises when investments are made in foreign currencies, and fluctuations between the home currency of the investor and the currency of the investment could affect the value of the investment. Exchange rate volatility may lead to potential losses or gains depending on market conditions.
Risks Associated with Investments in Mutual Funds: INVA Capital Markets may invest in mutual funds or schemes that themselves carry specific risks, as outlined in the scheme's risk disclosures. These risks may vary depending on the nature of the underlying assets, strategies, and investment focus of the mutual fund.
Risk Associated with Investment in Derivatives Market: INVA Capital Markets may use derivative products, which are leveraged instruments, and can lead to both significant gains and losses. The success of derivative-based strategies relies on the ability to correctly identify opportunities, which can involve considerable uncertainty. There is no guarantee that these strategies will always result in profitability. Derivative instruments, such as options and futures, require specialized investment techniques and risk analysis compared to traditional securities like stocks and bonds. These products carry additional risks, such as settlement risk, mispricing, and illiquidity, which may be greater than those of direct investments in traditional assets. INVA Capital Markets does not engage in leveraging clients' investments for derivative investments. For options trading, the buyer's risk is limited to the premium paid, while the seller (writer) of the option assumes unlimited risk, although their gains are limited to the premium earned. The writer of a put option bears the risk of loss if the value of the underlying asset declines below the exercise price. In such cases, the writer may be obligated to buy the asset at the higher exercise price, resulting in a loss equal to the difference between the exercise price and the market value of the asset at the time. Similarly, the writer of a call option faces a risk of loss if the value of the underlying asset increases above the exercise price. In this scenario, the writer may be required to sell the asset at the lower exercise price, potentially incurring a loss equal to the difference between the exercise price and the market value of the asset.
Risk Associated with Premature Withdrawal: If an investor or client requests a premature withdrawal or closure of their account, it may be necessary to liquidate certain securities or investments at a loss in order to generate cash for the withdrawal or investment closure. Since the investment was constructed based on the client’s specified time horizon, these investments may not have reached their full potential for growth, and as such, premature withdrawal could result in losses. INVA Capital Markets is not liable for any resulting losses, as the investment’s performance and structure were designed with the client’s long-term objectives in mind.