One of my most popular post has been on parking short term cash from last year. I have always believed that any successful investor should invest a portion of his portfolio in debt.

I will be writing on debt in three parts to do justice to this asset class. Today’s post is part -1

When investing in debt securities you are effectively lending money to businesses or governments or banks. Returns typically comprise interest and changes in the market value of the security.

Today we are going to cover

a) What is the risk of investing in debt instruments

b) What feasible options are available to retail investors to invest in debt instruments

There are few risks which we should be aware of

1. Loss of entire capital – Also know as credit risk or default risk. In unfortunate circumstances if the businesses or governments or banks are unable to return what you have lent them. To guard against this most of the debt instruments are rated by independent agencies,an investor should carefully understand what each ratings account for.

2. Loss on account of reduction in price of security – IFprice of the debt instrument goes  down, you may face … Read the rest