Opportunity cost refers to the value of the next best alternative that an individual, investor, or business foregoes when making a decision. In simple terms, it highlights what you sacrifice when you choose one option over another. This concept is essential in economics and finance, as it helps in comparing potential benefits to make rational, profit-maximizing decisions.

In investing, opportunity cost plays a critical role in portfolio management. For example, if an investor chooses to park ?1 lakh in a fixed deposit earning 6% annual interest, the opportunity cost could be the potential 12% return they might have earned by investing in equity mutual funds. While both choices carry different levels of risk, understanding the opportunity cost allows investors to evaluate whether the lower risk justifies the lower return.

Businesses also use the concept of opportunity cost in decision-making. When a company allocates resources to one project, it gives up the potential profit from another. F