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What are the different types of risks with

regard to debt securities?

The following are the risks associated with debt

securities:

  This can be defined as the risk that an issuer of a bond

may be unable to make timely payment of interest or principal on a debt security or
to otherwise comply with the provisions of a bond indenture and is also referred to
as credit risk.

  This can be defined as the risk emerging from an adverse
change in the interest rate prevalent in the market so as to affect the yield on the
existing instruments. A good case would be an upswing in the prevailing interest
rate scenario leading to a situation where the investors¶ money is locked at lower
rates whereas if he had waited and invested in the changed interest rate scenario, he
would have earned more.

  This can be defined as the probability of a fall in the
interest rate resulting in a lack of options to invest the interest received at regular
intervals at higher rates at comparable rates in the market.

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