Bonds

Bonds have several benefits that make it stand out from equity focused investments, they may include:

• Lower-risk investment: This is especially true for government bonds and investment-grade corporate bonds.
• Regular cash payout: Through coupon payments made annually or semi-annually.
• Potentially higher interest rates: Compared to Fixed Deposit rates.
• Capital appreciation opportunity: In addition to regular cash payouts.
• Investment diversification: Balance out higher-risk asset classes in portfolio.

Before you invest, however, you need to understand there are risks involved when it comes to investing into bonds. Here are some of the key risks to consider before you invest:

• Interest rates risk: Bonds usually pay a fixed coupon. This means that a rise in interest rates generally result in bond prices falling conversely, when rates decline, bond prices rise.
• Credit risk or default risk: This is the risk that a bond issuer will be unable to make interest or principal payments when they are due.
• Currency risk (for investment in foreign currency bonds): Foreign currency investments are subject to exchange rate fluctuations which may affect, unfavorably or favorably, the effective return on the bond.
• Liquidity risk: Investors may have difficulty finding a buyer when they want to sell and may be forced to sell at a significant discount to market value. Also, most bonds are subject to a minimum transaction threshold. If your investment is less than that threshold, you will not be able to sell until and unless there are enough other investors who also want to sell.