Risks Involved

Different kinds of bonds vary greatly in their terms and conditions. This affects the type and amount of risk involved in investing in them. In general, the types of risk that come into play when investing in bonds are:

Interest Rate Risk
As the general interest rates change, the actual capital value of your investment may fluctuate. When the general rates of interest goes down, the value of your bond will increase. Any rise in the general interest rates, however, will decrease the value of your bond.

Credit Risk
Should the organisation that issued the bond go out of business for some reason, they will not be able to fulfil any more interest payments or otherwise redeem the bond’s value. Non-government or corporate bonds carry more of this type of risk than bonds issued by the Government or Government-backed organisations.