The investors now get back their money a lot sooner than they had hoped and now have to go out into the marketplace to invest the money all over again. This therefore becomes the Risk of Reinvestment- an investor getting back their money and having to reinvest it all over again. Of course, should rates have risen, they would be able to get higher returns than from the old investment. But, if rates had risen, a corporation or municipality would NOT call the bonds due prior to the stated maturity, so it tends to be a moot point. But that all changes with GNMA funds- which people buy since they are portrayed as some of the most conservative investments available.
Investors receive both the interest AND the principal from the mortgages which occur each month.
But I need to further describe a major difference between GNMA's and regular bonds and the real problem in why GNMA's are not conservative. Remember, if you own regular bond, they may be callable. The issuer does NOT have the right to call these at just any time they want. In such case, the purchaser of your mortgage in the GNMA pool gets, potentially, a lot of their money back quickly and faces the Risk of Reinvestment. And they have no idea just how bad the risk may be since it is solely up to the homeowner to make the decision to refinance .