Bond Investment Risks
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Letters to Editor, MF - Letter to Editor, Mutual Fund
Concerning your special report in the last edition, what are the risks associated with investing in bonds?
Concerning your special report in the last edition, what are the risks associated with investing in bonds? - Jayesh Piramal
Editor Responds : Thank you for writing to us. Investing in bonds can be a safe and reliable way to generate income. However, there are some risks which you cannot ignore.
Interest rate risk is the risk that the price of a bond will fall if interest rates rise. Credit risk is the peril that the issuer of a bond will not be able to repay the principal and interest on the bond. Liquidity risk is the risk that you may not be able to sell your bonds quickly at a fair price. This is especially true for bonds that are not actively traded. Inflation is the risk in which the value of your bond investments will erode due to inflation. Political risk is the risk that the government of the country where a bond is issued may change its policies, which could affect the value of your investment. For example, if the government defaults on its debt, you could lose your investment.
It is important to understand these risks before investing in bonds, so you can make informed decisions.