Can there be any risk in Bond Investment?

Considering the Risk Pyramid, Bonds fall into the category of low-risk securities just like Fixed Deposits. 

- Default risk: The loss that an investor faces when issuer defaults(fail to return principal amount or Interest payments or both)

- Liquidity risk: This loss comes into picture only when an investor wants to sell bonds before maturity. This loss is incurred by the investor when he/she finds no buyer for their bonds and hence sells them at a discount.

- Interest-rate Risk: If interest rates increase, the price of the Bond decreases. At this time, the investor wants to sell the bonds he/she has to sell at a discount price. However, the flip side is that, if the interest rates in the economy decrease, bonds’ selling price will increase. At such a time, an investor can make capital gains by selling his bonds at a premium to his buy price.