Considering the Risk Pyramid, Bonds fall into the category of low-risk securities just like Fixed Deposits. Although there are a couple of risks involved that you need to know. Risks such as: Default risk: The loss that an investor faces when the issuer defaults (fail to return principal amount or Interest payments or both) Liquidity risk: The loss comes into the picture only when an investor wants to sell the bonds before maturity. The loss is incurred by the investor only 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 and he/she has to sell at a discounted price. However, the flip side is that, if the interest rates in the economy decrease, bonds’ selling prices will increase. At such a time, an investor can make capital gains by selling his bonds at a premium to the price when the bond was bought.