Five Risks in Debt instruments..!
(1) Interest rate
risk..!:
When the market interest rate rises above the
rate of a debt instrument, the demand for it falls and, hence, the market price
of the debt product also falls.
(2) Inflation risk..!
If inflation rates change during the lifetime
of a debt product, interest payment fixed at a past date becomes inadequate in
today's terms.
(3) Credit risk..!
If the issuer of a debt instrument defaults on
payments on the due dates, it results in a loss for the investor.
(4) Liquidity risk..!
When the investor is unable to sell the debt
product quickly as there are few buyers for it. He may then have to sell it at
a lower price or wait till maturity.
(5) Reinvestment
risk..!
The reinvestment of periodic interest received
may happen at a lower rate depending on the prevailing interest rate at that
time.
Courtesy:
Centre for Investment Education and Learning
(CIEL).
Contributions by
Girija Gadre, Arti Bhargava and Labdhi Mehta.
No comments:
Post a Comment