The common misconception is that Bonds and Sukuk have little risk. This is not true. Just like any other financial instrument, they have certain inherent risks but these can be reduced by diversification across other asset classes:
- Credit risk -also known as ‘issuer risk’ or ‘default risk’. Risk that the issuer may not be able to meet its obligations in terms of coupon payments or may not be able to pay the principal amount back to the bondholder at maturity. Government bonds are generally considered default-free, while corporate bond risk is measured by Rating Agencies.